CameronBrae
On 21 August 2007, the Full Federal Court handed down its judgment in a case concerning payments to a New Zealand resident superannuation fund. The Court held that the payments were not deductible because they were not made for the sole purpose of making provision for superannuation benefits for employees of the payer company. The Court also held that the payments were not deductible because the payment was an outgoing of a capital nature.
Indooroopilly Children Services
On 22 February 2008, the Full Federal court handed down its judgment in a test case concerning an employee share scheme. The Court was asked to determine whether the interpretation of a fringe benefit as applied in the Federal Court decision in Essenbourne (that there is no ‘fringe benefit’ unless there is an identified employee in connection with the receipt of the benefit) was correct and whether a fringe benefit was therefore provided.
The Court held that for a benefit to be considered a ‘fringe benefit’ a particular employee has to be identified in connection with the benefit. The Court also held that in this instance no fringe benefits tax applied.
Spotlight/Pridecraft Pty Ltd
On 25 May 2004, the Federal Court handed down its judgment in a case involving an employee benefit trust arrangement in which deductions were claimed for contributions to an employee incentive trust that would benefit arm’s length employees in future years.
While the Court held that the contributions were deductible under the general deduction provisions, it also held that the general anti-avoidance provisions in Part IVA of the income tax law applied to strike out the deductions otherwise allowable. The Court concluded that the case “is one in which ‘a flurry of activity around the end of the tax year’ in establishing and carrying out the Pt IVA Scheme is clearly aimed at obtaining a substantial deduction in that year”.
In the related Spotlight Stores decision, the Court held that the contribution to the incentive trust did not amount to the provision of a taxable fringe benefit. The Court concluded that it should follow its earlier decisions in Essenbourne and Walstern because they were not clearly wrong.
The Full Court upheld the earlier decisions when it dismissed appeals in both cases on 23 December 2004.
Walstern
On 8 December 2003, the Federal Court handed down its judgment in which it considered the deductibility of 'contributions' made to an off-shore non-complying superannuation fund.
The Court denied deductions for contributions made by a company to a New Zealand based superannuation fund on behalf of its owners who were also its sole employees.
The Court agreed with the Tax Office that the sole purpose of the contribution was not to provide superannuation benefits to persons who were employees.
It also held that the fringe benefits tax (FBT) applied in respect of the contributions at the time the amounts contributed were allocated by the fund to the employee owners.
Prebble
On 22 August 2003, the Full Federal Court dismissed the taxpayer's appeal in relation to whether the controller of a company, of which the controller was also an employee, could claim deductibility for contributions he or she made to a superannuation fund. As the Court concluded that an earlier favourable decision of the Full Court on the same issue in the Harris case was not plainly wrong, they decided not to overturn that decision.
On 8 October 2004 special leave to appeal to the High Court was not granted.
Kajewski & Ors
On 26 March 2003, the Federal Court handed down its judgment in which it considered the deductibility of 'contributions' purported to have been paid under an employee retention plan.
The Court held that the scheme was entered into only to provide the taxpayer's employer with a large tax deduction to claim against an increased business income. The 'contribution' was not a business expense made for the purpose of establishing a genuine employee retention plan. The Court confirmed the Commissioner's powers to amend assessments going as far back as the 1990 income year where an avoidance of tax was the result of fraud or evasion of the taxpayer's tax agent.
It was also held that the taxpayers involved in the scheme were not entitled to any reduction of the significant tax penalty imposed.
Essenbourne
On 17 December 2002, the Federal Court handed down its judgment, in which it considered the deductibility of 'contributions' purported to have been paid under an employee incentive trust. The Court held that an income tax deduction was not allowable for an amount contributed by a company to an employee incentive trust because the payment was simply a distribution of the company’s profits to the three principals of the company.
However, the Court disagreed with the Tax Office’s view that fringe benefits tax (FBT) should apply.
In relation to FBT, we are of the view that the Court’s decision is not correct and inconsistent with our understanding of the intent of the FBT law. However, we consider that the Essenbourne case is inappropriate for clarifying the FBT law on an appeal to the Full Federal Court given her Honour’s finding that the contribution to the employee incentive trust was a profit sharing exercise of the three principals of the company.
On the 13 September 2002, the Federal Court handed down its judgment on the Commissioner’s decision not to further remit the general interest charge. The charge was imposed for late payment of a liability incurred by the taxpayer. The liability arose after an assessment issued disallowing their deduction for contributions to a controlling interest superannuation fund.
The Court held that the decision was reasonable and was made within the Commissioner’s discretion.
The Court also held that there were good reasons put forward for discriminating between taxpayers involved in mass marketed schemes and those involved in employee benefit arrangements.
On 8 August 2002, the Full Federal Court handed down its judgment in which it considered the deductibility of superannuation contributions made under a controlling interest superannuation scheme. The Court held deductions were not available where employer contributions were made to a superannuation fund by the controller of a company for the controller’s own benefit, and that in fact there must be a contribution by an employer for an employee (who must be a different person). Further, the Court held the legislative history supported the Commissioner’s view and supported the view put by the primary judge that any other outcome would be extraordinary or at least anomalous.
Retirement village
Malouf
On 22 April 2008, the Federal Court handed down a decision in the retirement village scheme test case Malouf v. Federal Commissioner of Taxation (2008) FCA 497 on the issue of the income tax deductibility of contributions made by investors for the cost of the acquisition of land and the construction of a retirement village.
The Commissioner has appealed the decision to the Full Federal Court on the substantive issue of ‘incurred’ and the appeal is to be heard on 14 November 2008.
Last Modified: Tuesday, 30 September 2008
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