• Significant cases

    Table 7.5 lists significant cases decided by the courts and Administrative Appeals Tribunal in 2010-11 and describes the main issues of each case and outcome or status at 30 June 2011.

    TABLE 7.5: Significant cases, 2010-11

    Income tax cases - Part IVA
    These cases raised issues under the general anti-avoidance rule in the income tax law (Part IVA of the Income Tax Assessment Act 1936). Some of these cases also raised other issues, as identified below.

    Matter

    Issue

    Outcome

    Commissioner of Taxation v Ashwick (Qld) No. 127 Pty Ltd [2011] FCAFC 49

    This was the Commissioner's appeal from the decision of the Federal Court [2009] FCA 1388 as to whether intra-group bad debts, accrued interest, and losses transferred to related entities are allowable deductions.

    The Full Federal Court found in favour of the taxpayer on 8 April 2011, holding that various companies in the group were entitled to deductions for large amounts of unpaid principal or interest on internal loans to other companies in the group that were written off as bad debts under section 25-35 of the ITAA 1997. The Court also held that Part IVA did not apply.

    The Commissioner did not apply for special leave to appeal to the High Court.

    This case raises issues about the ability of corporate groups to get multiple income tax deductions for the same economic outlay through the use of special purpose entities or in-house finance entities not forming part of an income tax consolidated group.

    Commissioner of Taxation v AXA Asia Pacific Holdings Ltd [2010] FCFCA 134

    This was the Commissioner's appeal from a decision of the Federal Court as to whether the taxpayer has partial scrip-for-scrip roll-over relief in respect of a capital gain from the disposal of a shareholding in a wholly-owned subsidiary.

    The Full Federal Court found in favour of the taxpayer on 18 November 2011.

    The Full Federal Court held that the taxpayer was entitled to the benefit of the scrip-for-scrip roll-over provisions to indefinitely defer a capital gain, it being held that the parties involved were dealing with each other at arm's length and that Part IVA did not apply because there was no tax benefit.

    The High Court refused to grant the Commissioner special leave to appeal to the High Court on 11 March 2011 [2011] HCATrans 063.

    This case raises questions about the effectiveness of Part IVA to counter structured arrangements within the context of broader commercial purposes.

    It also raises questions about the effectiveness of the specific anti-avoidance provision for scrip-for-scrip roll-over relief.

    Commissioner of Taxation v BHP Billiton Limited & Ors [2010] HCATrans 320

    Commissioner of Taxation v BHP Billiton Limited [2011] HCA 17

    This was the Commissioner's application for special leave to appeal, and appeal, to the High Court from the decision of the Full Federal Court [2010] FCAFC 25 as to whether:

    • Part IVA applies to disallow deductions for amounts written off as bad debts in respect of a loan arrangement between the taxpayer (the internal financier for the group) and another group company; and
    • Division 243 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to reduce the taxpayer's capital allowance deductions on the basis that a particular loan is 'limited recourse debt' and the deductions are excessive having regard to the amount of debt that was repaid.
     

    The Commissioner's application for special leave to appeal to the High Court on the Part IVA issue was refused on 7 December 2010. As reported in the Annual Report 2009-10, the Full Federal Court held that Part IVA did not apply.

    However, the High Court granted special leave to the Commissioner to appeal on the Division 243 issue. The High Court found in favour of the taxpayer on that issue on 1 June 2011.

    The High Court held that a loan by the group finance company to a special purpose group company, which was written off by the finance company as a bad debt, was not 'limited recourse debt' within the meaning of Division 243. Therefore, the taxpayer's capital allowance deductions did not have to be reduced.

    Like the Ashwick case, this case raises issues about the ability of corporate groups to get multiple income tax deductions for the same economic outlay through the use of special purpose entities or in-house finance entities not forming part of an income tax consolidated group.

    British American Tobacco Australia Services Limited v Commissioner of Taxation [2010] FCAFC 130

    This was the taxpayer's appeal from a decision of the Federal Court [2009] FCA 1550 that Part IVA applies to the global merger of the British American Tobacco and the Rothmans group of companies, in relation to net capital gains on the sale of cigarette brand assets that crystallised in an entity with unrelated capital losses.

    The Full Federal Court found in favour of the Commissioner on 20 November 2010.

    The taxpayer's application for special leave to appeal to the High Court was refused on 8 April 2011 [2011] HCATrans 094.

    Commissioner of Taxation v Citigroup Pty Ltd [2011] FCAFC 61

    This was the taxpayer's and Commissioner's appeal against different aspects of the Federal Court decision [2010] FCA 826 concerning the application of Part IVA to a cross-border financing arrangement.

    The Full Federal Court found in favour of the Commissioner on the Part IVA question and for the taxpayer on the general interest charge (GIC) issue on 10 May 2011.

    Part IVA applied to cancel a foreign tax credit claimed by the taxpayer and the taxpayer was not liable to pay the general interest charge on the increased liability.

    Neither the Commissioner nor the taxpayer sought special leave to appeal the decision to the High Court.

    The implications of the decision in relation to GIC are confined to income years 2001 to 2008 given the repeal of the foreign tax credit provisions and the replacement by the foreign income tax offset regime.

    Futuris Corporation Limited v Commissioner of Taxation [2010] FCA 935

    This was the taxpayer's appeal to the Federal Court from a decision on objection as to whether Part IVA applies to a CGT reduction scheme that increases in the cost base of shares of a wholly-owned company.

    The Federal Court found in favour of the taxpayer on 31 August 2010, holding that the taxpayer did not obtain a tax benefit under the scheme.

    The Commissioner appealed the decision to the Full Federal Court.

    At 30 June 2011, the matter had been heard and the decision was reserved.

    Mills v Commissioner of Taxation [2011] FCA 205

    This was the taxpayer's appeal to the Federal Court from an objection to a private binding ruling as to whether imputation benefits were available to holders of hybrid stapled securities issued by a bank.

    The Federal Court found in favour of the Commissioner on 11 March 2011, holding that Part IVA applied because the purpose of the bank in issuing the securities was to enable holders of them to obtain an imputation benefit in respect of distributions sourced from New Zealand branch funds.

    The taxpayer has appealed the decision to the Full Federal Court.

    At 30 June 2011, the appeal had not been heard.

    Noza Holdings Pty Ltd v Commissioner of Taxation [2011] FCA 46

    This was the taxpayer's appeal to the Federal Court from a decision on objection as to whether there were allowable debt deductions in respect of a cross-border intra-group financing structure.

    The case raised the application of both Part IVA and section 25-90 of the Income Tax Assessment Act 1997 (which, generally speaking, allows deductions for debt servicing costs related to deriving non-assessable foreign source income).

    The Federal Court found in favour of the taxpayer on 4 February 2011 on both the Part IVA and section 25-90 issues. The application of Part IVA was rejected on the basis that the dominant purpose of the arrangement was not to obtain a tax benefit.

    The Commissioner appealed the decision to the Full Federal Court.

    At 30 June 2011, the appeal had not been heard.

    RCI Pty Ltd v Commissioner of Taxation [2010] FCA 939

    This was the taxpayer's appeal to the Federal Court from a decision on objection as to whether Part IVA applies to a scheme to use an exempt dividend to reduce the market value of the taxpayer's shareholding in a US subsidiary, which reduced the taxpayer's capital gain when the shares in the subsidiary were sold.

    The Federal Court found in favour of the Commissioner on 1 September 2010.

    The taxpayer appealed the decision to the Full Federal Court.

    At 30 June 2011, the matter was heard and the decision reserved.

    Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd [2010] FCAFC 94

    This was the Commissioner's appeal to the Full Federal Court against the decision of the Federal Court [2009] FCA 1210 as to whether Part IVA applied to a scheme to defeat law changes that limited employer deductibility for superannuation contributions for employees to age-based limits.

    The Full Federal Court dismissed the Commissioner's appeal and the taxpayer's cross appeal on 2 August 2010 and remitted the application of Part IVA to the Administrative Appeals Tribunal.

    The Full Federal Court held that the amount of the tax benefit is the excess in the amount of the deduction allowable to the taxpayer in relation to a year of income over the amount of the deduction allowable to the taxpayer in relation to that year of income under the alternative postulate. The taxpayer's cross-appeals were also dismissed

    Neither the Commissioner nor the taxpayer applied for special leave to appeal to the High Court.

    Some uncertainty is created for both taxpayers and the Commissioner because of the possible inconsistency between this decision (and the decision of the Full Federal Court in the Ashwick case) and a previous Full Federal Court decision (Commissioner of Taxation v Lenzo [2008] FCAFC 50) as to whether the allowable deduction (if any) identified in the alternative postulate has to be of the same kind or character as that allowable (but for Part IVA) under the scheme.

    Income tax cases - relating to transfer pricing

    Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74

    This was the Commissioner's appeal from a decision of the Federal Court [2010] FCA 635 as to whether the transfer pricing provisions applied to the taxpayer which had made losses over a number of years and was purchasing trading stock from related international companies.

    The Full Federal Court found in favour of the taxpayer on 1 June 2011.

    The Commissioner did not apply for special leave to appeal to the High Court given the findings of fact made by the Federal Court.

    This decision questions the alignment of the domestic transfer pricing provisions in Division 13 of the Income Tax Assessment Act 1936 with the internationally accepted arm's length principle, as developed by the OECD.

    Income tax cases - relating to trusts

    Allen (Trustee), in the matter of Allen's Asphalt Staff Superannuation Fund v Commissioner of Taxation [2010] FCA 1276

    This was the taxpayer's appeal to the Federal Court from a decision on objection as to whether a distribution from a trust to a superannuation fund is special income of the fund.

    The Federal Court found in favour of the Commissioner on 19 November 2010, holding that a distribution from the trustee of a fixed trust to a superannuation fund is special income in the hands of the superannuation fund and the penalty was correctly imposed.

    The taxpayer appealed the decision to the Full Federal Court.

    At 30 June 2011, the appeal had not been heard.

    Barkworth Olives Management Limited v Deputy Commissioner of Taxation [2010] HCATrans 299

    This was the taxpayer's application for special leave to appeal to the High Court from the decision of the Queensland Court of Appeal [2010] QCA 80 about a trustee's personal liability to pay tax.

    The Queensland Court of Appeal held that paragraph 254(1)(e) of the Income Tax Assessment Act 1936 does not apply to limit the trustee's personal liability to pay tax under a provision in Division 6 of Part III of the Act.

    The taxpayer's application for special leave was refused on 12 November 2010.

    Bruton Holdings Pty Limited (In Liq) v Commissioner of Taxation [2011] FCAFC 79

    This was the liquidator's appeal to the Full Federal Court from a decision of the Federal Court [2010] FCA 978 about trustees obtaining indemnities from trust funds.

    The Full Federal Court found in favour of the taxpayer on 17 June 2011 holding that the corporate trustee was entitled to indemnification from the trust fund for litigation expenses.

    The Court confirmed the ATO view that a bare trustee has an obligation to protect the trust assets, but rejected the Commissioner's assertion that its actions to protect the fund were necessary in this case.

    The Commissioner did not seek special leave to appeal the decision to the High Court.

    Commissioner of Taxation v Clark [2011] FCAFC 5

    This was the Commissioner's appeal from a decision of the Federal Court that held that there was sufficient continuity in the trust, given changes in beneficial ownership, so that carry-forward net capital losses incurred before the changes could be applied to reduce a capital gain made after the changes.

    The Full Federal Court found in favour of the taxpayer on 21 January 2011 [2009] FCA 1401, holding that the trust estate that made capital losses in prior years was the same trust estate that made a capital gain in a later income year even though there was a change in the control of the trust.

    The Commissioner applied for special leave to appeal to the High Court from the decision of the Full Federal Court.

    At 30 June 2011, the application for special leave had not been heard.

    Other income tax cases

    Commissioner of Taxation v Anstis [2010] HCA 40

    This was the Commissioner's appeal from a decision of the Full Federal Court [2009] FCAFC 154 about whether the taxpayer's youth allowance was assessable income and whether self-education expenses were deductible.

    The High Court found in favour of the taxpayer on 11 November 2010, holding that the youth allowance was assessable income, the expenses were incurred in gaining or producing that income, and the expenses were not of a private nature as the study was productive of the youth allowance income.

    Commissioner of Taxation v Co-operative Bulk Handling Limited [2010] FCAFC 155

    This was the Commissioner's appeal from decision of the Federal Court [2010] FCA 508 as to whether the taxpayer is exempt from income tax.

    The Full Federal Court found in favour of the taxpayer on 17 December 2010 holding that the taxpayer was exempt from income tax on the basis that it is established for the purpose of promoting the development of Australian agricultural resources, and is not carried on for the profit or gain of its individual members.

    The Commissioner did not seek special leave to appeal to the High Court.

    Denlay v Commissioner of Taxation [2011] FCAFC 63

    This was the taxpayer's appeal against the Federal Court decision [2010] FCA 1434 and [2010] FCA 1435 confirming the validity of amended assessments based in part on documents from a Liechtenstein bank.

    The Full Federal Court found in favour of the Commissioner on 11 May 2011 holding that there was no conscious maladministration as there had been no bad faith on the part of the Commissioner or his officers.

    The taxpayer applied for special leave to appeal to the High Court.

    At 30 June 2011, the application for special leave to appeal had not been heard.

    MW McIntosh Pty Ltd & Anor v Commissioner of Taxation [2010] HCATrans 239

    This was the taxpayer's application for special leave to appeal to the High Court from the decision of the Full Federal Court [2009] FCAFC 88, holding that the Commissioner had no power to extend the period within which a choice to consolidate a corporate group for income tax purposes could be made.

    The High Court refused to grant special leave on 3 September 2010.

    Russell v Commissioner of Taxation [2011] FCAFC 10

    This was the taxpayer's appeal from a decision of the Federal Court [2009] FCA 1224 as to whether personal services income derived from a New Zealand company is subject to Australian tax and whether the partnership is entitled to input tax credits in relation to an accountancy practice and naturist retreat.

    The Full Federal Court found in favour of the Commissioner on the personal services income issue and for the taxpayer on part of the input tax credits issue, on 4 February 2011

    The taxpayer has applied for special leave to appeal to the High Court.

    At 30 June 2011, the application for special leave to appeal had not been heard.

    Tagget v Commissioner of Taxation [2010] FCAFC 109

    This was the taxpayer's appeal against a decision of the Federal Court [2010] FCA 25 concerning when a right acquired under a deed for the transfer of land should be valued and when income was derived by the taxpayer where the land had been transferred to him.

    The Full Federal Court found in favour of the Commissioner on 8 September 2010 confirming the Commissioner's view that ordinary income is derived at the time of transfer of land and not at the time the relevant deed was entered into

    The taxpayer did not apply for special leave to appeal to the High Court.

    Goods and services tax cases

    Commissioner of Taxation v American Express Wholesale Currency Services Pty Limited [2010] FCAFC 122

    This was the Commissioner's appeal from the decision of the Federal Court [2009] FCA 683 as to whether late payment fees in respect of credit card services are revenue from the making of financial supplies and if so whether they are not financial supplies because they are supplies under a payment system.

    The Full Federal Court found in favour of the Commissioner on 8 April 2011, holding that the supply of the right to use a charge or credit card was an input taxed financial supply, and the fees payable by card holders for late payments fees were revenue from input taxed financial supplies.

    The taxpayer's application for special leave to appeal to the High Court was refused after a full hearing of the matter by the Full Court on 4 May 2011 [2011] HCATrans 114.

    Travelex Ltd v Commissioner of Taxation [2010] HCA 33

    This was the taxpayer's appeal from a decision of the Full Federal Court [2009] FCAFC 133 as to whether the supply of foreign currency in exchange for Australian currency that occurs at airports on the airside of the customs barrier is GST free.

    The High Court found on 29 September 2010 that the supply of foreign currency to travellers on the departure side of customs is GST-free because the transfer of the foreign currency is a supply in relation to rights for use outside Australia.

    Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6

    This was the taxpayer's appeal from a decision of the Federal Court [2010] FCA 329 holding that the product known as 'mini ciabatte' was subject to GST on the basis that it is a cracker.

    The Full Federal Court found in favour of the Commissioner on 31 January 2011.

    The taxpayer applied for special leave to appeal to the High Court.

    At 30 June 2011, the application for special leave had not been heard.

    Qantas Airways Limited and Commissioner of Taxation [2010] AATA 977

    This was the taxpayer's appeal to the Administrative Appeals Tribunal from a decision on objection as to whether the airline makes a taxable supply for consideration where:

    • a customer makes a booking for a flight and pays the fare;
    • the conditions of carriage give rise to a contract enforceable at law; and
    • the customer does not take the flight and thereby forfeits, or does not seek a refund of, the fare paid.
     

    The Administrative Appeals Tribunal found in favour of the Commissioner on 6 December 2010.

    The taxpayer appealed the decision to the Full Federal Court.

    At 30 June 2011, the matter was heard and the decision was reserved.

    Superannuation cases

    Roy Morgan Research Pty Ltd v Commissioner of Taxation & Anor [2010] HCATrans 323

    This was the taxpayer's application for special leave to appeal to the High Court from a decision of the Full Federal Court [2010] FCAFC 52, holding that interviewers were employees of the applicant and that the superannuation guarantee charge was imposed for public purposes and is constitutional.

    The High Court granted the taxpayer leave to appeal on 10 December 2010.

    At 30 June 2011, the High Court appeal was heard and the decision reserved.

    Fringe benefits tax cases

    Virgin Blue Airlines Pty Ltd v Commissioner of Taxation [2010] FCAFC 137

    This was the taxpayer's appeal from the decision of the Federal Court [2010] FCA 631 as to whether car parking provided to the taxpayer's employees, in a car park located 2 km from the airport terminal where the employees worked, is 'in the vicinity of' their primary place of employment.

    The Full Federal Court found in favour of the taxpayer on 30 November 2010.

    The Commissioner did not apply for special leave to appeal to the High Court.

    Excise cases

    Sogo Duty Free Pty Ltd v Commissioner of Taxation [2011] FCAFC 36

    This was the taxpayer's appeal from a decision of the Federal Court [2010] FCA 976 as to whether the taxpayer, the proprietor of an outwards duty free shop, was liable to pay excise duty on cigarettes that were for home consumption.

    The Full Federal Court found in favour of the Commissioner on 16 March 2011, holding that excise duty applied given the finding of fact made by the Court.

    The taxpayer did not apply for special leave to appeal to the High Court.

    Petroleum resource rent tax cases

    Esso Australia Resources Pty Ltd v The Commissioner of Taxation [2011] FCA 565

    This was the taxpayer's appeal to the Federal Court from a decision on objection as to whether the taxpayer was entitled to deductions for 'mutualised research' and indivisible payments made under a contract to a related company.

    The Federal Court found for the Commissioner and the taxpayer on different issues on 30 May 2011.

    The Federal Court held that the taxpayer was entitled to a deduction for indivisible payment amounts under contract to a related entity but was not entitled to a deduction for its contribution to a US affiliate for 'mutualised research'.

    The Commissioner and the taxpayer have appealed the decision to the Full Federal Court.

    At 30 June 2011, the appeal had not been heard.

    Esso Australia Resources Pty Ltd & BHP Billiton Petroleum (Bass Strait) Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia [2011] FCA 360

    This was the taxpayers' appeal to the Federal Court from a decision on objection as to whether the taxpayers were liable to pay the Petroleum Resource Rent Tax for their products.

    The case seeks to clarify the tax treatment and 'taxing point' of various petroleum products.

    The Federal Court found for the Commissioner and the taxpayers on different issues on 13 April 2011.

    The Federal Court found that the taxpayers had derived assessable petroleum receipts as a number of products were not excludable commodities. However, the Court also found that the electricity sold was not an assessable receipt, nor were payments to the Gas and Fuel Corporation.

    The Commissioner and the taxpayers have appealed the decision to the Full Federal Court.

    At 30 June 2011, the appeal had not been heard. However, in the 2011-12 federal budget the government announced it would amend the law to provide greater certainty on the taxing point issue, with effect from 1 July 1990. The announcement said the amendments were aimed at providing further statutory support for the Federal Court's judgment in this case.

    Taxation administration cases

    Soong v Deputy Commissioner of Taxation [2011] NSWCA 26

    This was the Commissioner's appeal against the decision of the Supreme Court of NSW [2009] NSWSC 495 as to when director penalty notices are given.

    The NSW Court of Appeal found in favour of the taxpayer holding, contrary to their earlier decision in DC of T v Meredith [2007] NSWCA 354, that the Commissioner 'gave' the defendant the Director Penalty Notices on the date they were received, rather than the date they were posted.

    The Commissioner applied for special leave to appeal to the High Court.

    At 30 June 2011, the application had not been heard.

      Last modified: 31 Oct 2011QC 28036