EXPERIENCED TOURS PTY LTD & ORS v FC of T

Members:
BH Pascoe SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2006] AATA 517

Decision date: 14 June 2006

BH Pascoe (Senior Member)

1. These applications are for review of decisions of the respondent to disallow objections to a number of amended assessments which related to the establishment and operation of an Employee Share Plan arrangement. Three amended assessments of income tax were issued to the company, Experienced Tours Australia Pty Ltd (ETA), disallowing deductions claimed for amounts paid under the arrangement in the years ended 30 June 1996, 1997 and 1998. Three amended assessments of income tax were issued to the two employee shareholders Miss E. Liu ("Liu") and Mr H.T. Teh ("Teh") to include such amounts in assessable income in the same three years. Two amended assessments of Fringe Benefit Tax were issued to ETA for the years ended 31 March 1997 and 31 March 1998 including the amounts as fringe benefit.

2. At the hearing the applicants were represented by Mr D. McLennan, an accountant. The respondent was represented by Ms D. Harding of counsel.

3. There was no dispute as to the underlying facts of this case. In June 1996 Mr McLennan as accountant to ETA implemented the employee share plan arrangements on advice from Coadys Solicitors. The details of the transactions involved were conveniently summarised in the respondent's statement of facts as follows:-

"…

FACTS

  • 4. Experienced Tours Australia Pty Ltd (' Experienced Tours ') was incorporated on 1 February 1988.
  • 5. At all material times Heong Tee Teh (also known as Ted Teh) and Elly Liu were the directors and shareholders of Experienced Tours. On 1 April 2003 Elly Liu ceased as a director.
  • 6. At all material times Experienced Tours:
    • a) conducted a travel agency service;
    • b) was the trustee of the Experienced Tours Australia Superannuation Fund.
  • 7. David McLennan is the Applicants' tax agent. At all material times David McLennan and Stephen McLennan were the directors and shareholders of McLennan Partners Pty Ltd.
  • 8. Experienced Tours Australia Employee Share Plan Pty Ltd (' ETA ESP ') was incorporated on 21 June 1996. Since that date David McLennan has been the director.
  • 9. The authorised capital of ETA ESP is $10,000,000 divided into:
    • a) 2 subscriber shares of $1 each;
    • b) 5,000,000 employer shares of $1 each;
    • c) 4,999,999 employee shares of $1 each;
    • d) 900 residuary shares of $1 each;
    • e) 98 manager shares of $1 each.
  • 10. Subscriber shares were redeemable preference shares issued to the subscribers to the Memorandum and Articles of Association on incorporation of the company. The subscriber shares were to be redeemed upon the issue and payment in full of the first two manager shares, thereupon the authorised number of manager shares was to increase by 2 and the authorised number of subscriber shares was to decrease by 2.
  • 11. Employer shares:
    • a) can only be issued to an employer, which term is defined to mean ETA and any person who is registered as the holder of employer shares;
    • b) can only be issued at a premium of $5,000 per share (or such other premium as the directors may from time to time determine);
    • c) entitle the holder to receive notice of and attend and speak at any meeting of members;

      ATC 2234

    • d) carry no voting rights, apart from the right to vote on a resolution which would have the effect of altering the rights attaching to employer or employee shares or for the removal or replacement of a manger;
    • e) carry no right to dividends or to participate in any way in a distribution of profits of the company, except upon a return or reduction of capital or a winding up to rank equally with other shares and to have surplus assets applied in repaying the amount paid up on the shares but not any part of the premium paid on the issue of employer shares.
  • 12. An application for employer shares must be in writing and contain:
    • a) the name and address of the employer, the number of employer shares applied for and the premium proposed to be paid on each employer share applied for;
    • b) the name of the employee member in respect of whose employee share it is proposed that the premium be paid and in respect of whose employee's account the premium is to be credited;
    • c) the name and address of each person in respect of whom the employer proposes will be allotted residuary shares and become a residuary member for the purposes of each employer share being applied for;
    • d) the terms of issue of the employee share to which the premium relates; and
    • e) any other information as the directors may from time to time require.
  • 13. An application for employer shares must be accompanied by the subscription moneys for the employer shares including any premium payable and, if no residuary shares have been issued, an application by the proposed residuary member for the issue of residuary shares together with the subscription money for the residuary shares.
  • 14. Employee shares:
    • a) are redeemable preference shares and can only be issued to an employee, which term is defined to mean a person who is employed by an employer (and includes a relative) and a director of an employer;
    • b) are not transferable;
    • c) entitle the holder to receive notice of and attend and speak at any meeting of members;
    • d) carry no voting rights, apart from the right to vote on a resolution which would have the effect of altering the rights attaching to employee shares or for the removal or replacement of a manger;
    • e) carry the right to remove or to nominate and elect one director to the Board;
    • f) carry the right to receive any employee dividend entitlement declared in respect of the share during an income period provided no disentitling event has occurred;
    • g) carry the right to receive the employee redemption amount:
      • i. at the option of the company either upon the occurrence of a disentitling event or at the mandatory redemption date; or
      • ii. at the option of the employee shareholder at the time or times specified in the terms of issue or if no such time is specified and the share is not redeemed by reason of (i) then at the mandatory redemption date;
    • h) carry the right upon a winding up to have surplus assets and profits applied in equal ranking with other shareholders in repaying the amount paid up on the shares and then in priority in payment of the amount of any employee redemption amount;
    • i) are subject to forfeiture on the happening of a disentitling event.
  • 15. An application for employee shares must be in writing and be accompanied by the subscription money for the employee shares. The application must contain the employee's name and address

    ATC 2235

    and such information as may be required by the directors.
  • 16. The directors are required to open and maintain an employee's account in respect of each employee share held by each employee member in which there is to be recorded, inter alia, the amount paid on employer shares in respect of the employee share.
  • 17. The directors may only invest moneys credited to an employee's account in certain modes of investment after consultation with the employee member.
  • 18. Residuary shares:
    • a) are redeemable preference shares and can only be issued to a residuary entity, which term is defined to mean a person (including the trustee of a superannuation fund established by an employer for the benefit of employees) who is not an employer member or employee member;
    • b) carry no voting rights;
    • c) entitle the holder to receive notice and attend and speak at any meeting of members called for the purpose of considering a resolution to wind up the company;
    • d) carry the right to receive any residuary dividend entitlement declared by the directors, but the right is subordinated to the rights of the holders of employee shares;
    • e) carry the right to receive the residuary redemption amount at the option of the company when all employees cease to be members or at the mandatory redemption date;
    • f) carry the right upon a winding up to have surplus assets and profits applied in equal ranking with holders of other shares in repaying the amount paid up on the shares and thereafter subordinated to the holders of employee shares but in priority to other classes in the payment of any residuary redemption amount.
  • 19. Manager shares:
    • a) can only be acquired by a person approved by a majority of holders of employer shares;
    • b) entitle the holder to receive notice of and to attend and speak at meetings of members;
    • c) confer the right to vote, other than on a resolution for the removal or replacement of the manager or for the appointment of an additional manager;
    • d) carry no entitlement to dividends or to participate in a distribution of profits or surplus assets, other than upon a return or reduction of capital or on a winding up to rank equally with all other shares in having surplus assets applied in repaying the amount paid up on the shares.
  • 20. A Minute of Meeting of Directors of ETA ESP dated 24 June 1996 records that:
    • a) David McLennan was present and was the chairperson;
    • b) the chairman tabled duly executed applications for allotment of employee shares, manager shares and residuary shares and noted that payment of the subscription price accompanied each application;
    • c) it was resolved, inter alia, that:
      • i. 120 employee shares of $1 each be allotted and issued to each of the named parties as at the date of the meeting:
        To Elly Liu
          60 employee shares
        To Heong Tee Teh
          60 employee shares
      • ii. two manager shares be allotted and issued to McLennan Partners Pty Ltd;
      • iii. two residuary shares be allotted and issued to Experienced Tours;
      • iv. share certificates be prepared and issued to each of the applicant(s).

        ATC 2236

  • 21. A Minute of Meeting of Directors of Experienced Tours dated 25 June 1996 records that:
    • a) Heong Tee Teh and Elly Liu were present;
    • b) Elly Liu was appointed chairperson of the meeting;
    • c) the chairperson noted that the company as trustee of the Experienced Tours Australia Superannuation Fund had been requested by the company to become a residuary shareholder in ETA ESP which was a special company formed as part of an employee share plan and it was noted that the company would pay for the par value of the shares;
    • d) it was resolved that the company agree to the company making application on its behalf for two residuary redeemable preference shares of $1 each.
  • 22. A Minute of Meeting of Directors of Experienced Tours dated 25 June 1996 records that:
    • a) Heong Tee Teh and Elly Liu were present;
    • b) Elly Liu was appointed chairperson of the meeting;
    • c) the chairperson confirmed that, in accordance with the previous resolutions of the company, a new company ETA ESP had been incorporated for the purpose of implementing an employee share plan for the company's employees and that employee, manager and residuary share in ETA ESP had been allotted;
    • d) it was resolved, inter alia, that:
      • i. the following contributions to the plan now be made in respect of the shares already issued to the named employee:
        Elly Liu 60
        Heong Tee Teh 60
      • ii. the company make application to ETA ESP for the issue of 120 employer shares of $1 each on which it was proposed to pay a premium of $5,000 per share being the company's contribution towards the plan on behalf of that employee participating in the plan.
  • 23. A Minute of Meeting of Directors of ETA ESP dated 25 June 1996 records that:
    • a) David McLennan was present and was appointed chairperson of the meeting;
    • b) the chairperson tabled duly executed applications for allotment of employer shares and noted that the subscription price for the shares accompanied the applications;
    • c) it was resolved, inter alia, that:
      • i. 120 employer shares of $1 at a premium of $5,000 per share which premium was to be allocated in the following proportions to the credit of the employee account to be held in accordance with the Articles in relation to the employee shares held by the following employee:
        • Elly Liu
        • Premium to be applied to this employee's employee shares $300,000
        • Heong Tee Teh
        • Premium to be applied to this employee's employee shares $300,000
      • ii. the company create and maintain an employee account in respect of the premium contributed by the employer in respect of shares held by each nominated employee and that each employee's account be maintained in accordance with clause 122 of the company's articles;
      • iii. the company invest the employer contributions in accordance with the investment preference (if any) of the nominated employee;
      • iv. share certificates be prepared and issued in respect of the shares allotted.

        ATC 2237

  • 24. On or about 26 June 1996:
    • a) Experienced Tours drew a cheque for $600,000 on its National Australia Bank Business Management Account No. 51 657 6596;
    • b) $600,000 was deposited in ETA ESP's National Australia Bank Business Management Account No 66 812 4310.
  • 25. A Minute of Meeting of Directors of ETA ESP dated 11 May 1997 records that it was resolved, inter alia, that 60 employee shares of $1 each be allotted and issued, 30 shares to each of Elly Liu and Heong Tee Teh.
  • 26. A Minute of Meeting of Directors of Experienced Tours dated 12 May 1997 records that it was resolved, inter alia, that contributions to the plan be made in respect of shares issued to Elly Liu and Heong Tee Teh and that the company apply for the issue of 60 employer shares of $1 each on which it was proposed to pay a premium of $5,000 per share.
  • 27. A Minute of Meetings of Directors of ETA ESP dated 12 May 1997 records that it was resolved, inter alia, that 60 employer shares of $1 each at a premium of $5,000 be allotted and issued to ETA, with the premium to be allocated $150,000 to each of Elly Liu's and Heong Tee Teh's employee shares.
  • 28. On or about 13 May 1997:
    • a) Experienced Tours drew a cheque for $300,000 on its National Australia Bank Business Management Account No. 51 657 6596;
    • b) $300,000 was deposited in ETA ESP's National Australia Bank Business Management Account No 66 812 4310.
  • 29. A Minute of Meeting of Directors of ETA ESP dated 9 December 1997 records that it was resolved, inter alia, that 60 employee shares of $1 each be allotted and issued, 30 shares to each of Elly Liu and Heong Tee Teh.
  • 30. A Minute of Meeting of Directors of Experienced Tours dated 10 December 1997 records that it was resolved, inter alia, that contributions to the plan be made in respect of shares issued to Elly Liu and Heong Tee Teh and that the company apply for the issue of 60 employer shares of $1 each on which it was proposed to pay a premium of $5,000 per share.
  • 31. A Minute of Meetings of Directors of ETA ESP dated 10 December 1997 records that it was resolved, inter alia, that 60 employer shares of $1 each at a premium of $5,000 be allotted and issued to ETA, with the premium to be allocated $150,000 to each of Elly Liu's and Heong Tee Teh's employee shares.
  • 32. On or about 11 December 1997:
    • a) Experienced Tours drew a cheque for $300,000 on its National Australia Bank Business Management Account No. 51 657 6596;
    • b) Experienced Tours purchased a fixed rate note in Trust Bank on account of ETA ESP for the sum of $300,000."

4. It is appropriate to deal first with the amended assessments of Fringe Benefit Tax ("FBT"). They were first in chronological order in the attack by the respondent on the arrangement in question and a decision on these amended assessments may well assist in the disposition of the income tax issues. On 28 November 2000, the respondent issued the amended FBT assessments to include $600,000 in the aggregate fringe benefits amount of both the year ended 31 March 1997 and the year ended 31 March 1998.

5. FBT is payable when there is a "fringe benefit" as defined in s 136(1) of the Fringe Benefits Tax Assessment Act 1986 (the "FBTA Act"). This provides that:-

" "fringe benefit" in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

  • a) provided at any time during the year of tax; or
  • b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by;

  • c) the employee; or
  • d) an associate of the employer; or

    ATC 2238

  • e) a person (in this paragraph referred to as the "arranger" ) other than the employer or an associate of the employer under an arrangement … between:
    • i. the employer or an associate of the employer; and
    • ii. the arranger or another person …

in respect of the employment of the employee… "

There are a number of exclusions from the definition which are not relevant to this matter.

6. "Benefit" is defined as follows:-

" "benefit" includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

  • a) An arrangement for or in relation to
    • i. The performance of work (including work of a professional nature), whether with or without the provision of property;
    • ii. The provision of, or use of facilities for, entertainment, recreation or instruction; or
    • iii. The conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;
  • b) a contract of insurance; or
  • c) an arrangement for or in relation to the lending of money."

7. The tax is payable on the "taxable value" of the fringe benefit. The respondent submitted that, if there was a fringe benefit provided by ETA in the relevant years, it fell within the category of an "external non-period residual fringe benefit". I have no difficulty in accepting this submission. As such, the valuation of the benefit under s 50(c) of the FBTA Act is the "notional value of the recipient's property at the provision time reduced by the amount of the recipient's contribution". "Notional Value" is defined in s 136(1) as:-

" "notional value" in relation to the provision of property or another benefit to a person, means the amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arm's length transaction."

8. There was no dispute that Liu and Teh were employees of ETA for the purpose of the FBTA Act. I am left in no doubt that, when ETA paid the premiums in relation to the employer shares and nominated that 50% of the total premium on each of the three occasions be allocated to each of Liu and Teh constituted a benefit to each of those employees. I am satisfied also that those benefits were provided by ETA as their employer and were provided in respect of the employment of them. In relation to the dispute on the amended assessments of income tax, it was argued strongly that the amounts of premium allocated to each employee represented the difference between an arms length salary and the actual salary paid. No formal evidence of such amounts was produced.

9. In this case the steps taken in the implementation of the arrangement were preplanned or prearranged according to the instructions provided by Coadys. Liu and Teh were the sole shareholders and directors of ETA and it could not be contemplated that they were not aware that the consecutive steps would result in each of them having 50% of the total premiums paid by ETA invested for their individual benefit and at their discretion. It follows that I am satisfied that, at the time of payment and allocation of the premium, a property benefit was provided.

10. It is then necessary to turn to the question of the value of the benefit. While said to be relevant to the question of the valuation of shares in ETA ESP for the purposes of Division 13A of the Income Tax Assessment Act 1936 ("1936 ITA Act") in the assessments of the individuals, each party provided expert evidence as to such value. It would seem that each party seeks to rely on the same assessment of value in assessing the notional value of the benefit. Mr Peter Haslock for the applicants ascribed a value equal to the book value of the net assets of ETA ESP less a discount of 40% for lack of negotiability and the possibility of conditions which would make them worthless. Mr Paul Carter, for the respondent, applied a discount of 10% to take into account the


ATC 2239

restrictions on marketability. It must be noted that the valuations were prepared primarily for the purpose of Division 13A and the market value of the shares. For the purposes of the FBTA Act it is the notional value of the benefit which is in issue.

11. In
Walstern Pty Ltd v F.C. of T. 2003 ATC 5076, Hill J was concerned with the allocation of contributions to an off-shore non-complying superannuation fund for the benefit of two director-shareholders. It can be seen that the question of notional value of the redeemable employee shares is little different to that of valuing amounts allocated to the credit of an employee in a superannuation fund. In Walstern, Hill J said (at pp 5092 and 5093):-

  • "92. It is then necessary to turn to the question of the value of the benefit made in each fringe benefit tax year at the time of allocation. Evidence was adduced both on behalf of Walstern and on behalf of the Commissioner from accountants seeking to value the interest in the fund in the event that there was a fringe benefit.
  • 95. Ultimately there is no need to discuss the valuation evidence. The first question and ultimately the only question which arises is the proper construction of the valuation formula. Once that is determined then there will be no need to turn to an expert to make a valuation.
  • 96. As already noted, the valuation formula depends upon the "notional value" in relation to the provision whether of property or of a benefit to each of the Medichs. From the definition it follows that the question to be asked is what is the amount that each of the Medichs could reasonably be expected to have been required to pay to obtain the benefit from the provider under an arms length transaction. The provider in the present case is Walstern. Hence the question in relation to Mr Ronald Medich, is how much he could reasonably be expected to have been required (ie by Walstern) to pay to Walstern to obtain the interest obtained by him in the fund, assuming the transaction between Waltern and him to be at arms length. The question is not what the value of Mr Medich's interest in the fund was at any relevant point of time. Obviously if that was the question and the relevant point of time was the making of the contribution, it may well be that the value of the benefit was nil.
  • 97. The benefit, ie the interest under the fund as provided by Walstern, cost Walstern $500,000. Obviously Walstern would expect to be paid that amount by Mr Medich before it would make the contribution resulting in Mr Medich having the benefit under the fund. In my mind no conclusion is open other than that the notional value of each of the benefits provided to Mr Ronald Medich and Mr Roy Medich is $500,000 with the consequence that the valuation of Mr Banks has no relevance for what he valued was not what the statute requires.
  • 98. The result should not be seen as extraordinary. Although the valuation formulae differ from fringe benefit to fringe benefit and the values are sometimes concessionary in favour of the employee, there is to be found in the valuation formulae generally the concept that the benefit is to be determined by reference to the cost to the employer of the benefit. In State of Queensland v Commonwealth of Australia 87 ATC 4029; (1987) 162 CLR 74 Gibbs CJ described the subject of fringe benefits tax as being (see ATC 4032; CLR 83):

    "… the value of the benefits provided by the employer, and not the value of the benefits received by the employee; a benefit to the employee within the meaning of the Assessment Act will have been provided notwithstanding that the benefit was surplus to the needs or wants of that employee, and notwithstanding that the benefit is offset by some inconvenience or disadvantage."

  • 99. In Kumagai Gumi I noted at ATC 4323; FRC 282 that it was generally true that the statutory valuation formulae arrived at a figure which more or less represented the cost of the benefit to the employer. I recognised the danger of taking comments such as those made by Gibbs CJ in Queensland v Commonwealth or for that matter by me in Kumagai Gumi as expressing questions of law when they are no more

    ATC 2240

    than general statements expressed without reference to the qualifications which might need to be made before they could be said to be accurate. Indeed in Kumagai Gumi I pointed out that the valuation rules often differ from the cost to the employee and I referred to the rules or calculating the value of loan fringe benefits in s 18 which clearly were intended to favour an employee at least in a case where the employer borrowed at an interest rate in excess of the bench rate adopted for fringe benefits tax. Indeed I rejected and I still would reject a legal proposition that suggested that absent a specific valuation rule some general principle of cost to the employer should be used to calculate fringe benefits. However, the fact that the valuation arrived by a construction of the valuation formulae amounts to the same figure as the cost to the employer could not be said to be surprising."

12. I have no difficulty in adapting the approach of Hill J in Walstern in this case. It follows, therefore, that in the year ended 31 March 1997 ETA was liable to FBT on the premium of $600,000 allocated to its two employees on 25 June 1996, and in the year ended 31 March 1998 the two premiums of $300,000 each allocated on 12 May 1997 and 10 December 1997. The culpability component of additional tax for an incorrect return was imposed by the respondent at the rate of 5%. Such level of penalty appears appropriate in the circumstances of this case. Consequently the objection decision under review in relation to the FBT assessment should be affirmed.

13. The next matter to be considered is the amendment of income tax assessments of ETA for the years ended 30 June 1996 to 1998 inclusive which disallowed deductions claimed for the premiums payed on the employer shares in ETA ESP in each of those years. The primary argument for the company was that the contributions assisted in the retention of key staff members. However, the only staff members to benefit from the arrangement were the two shareholders of the company and the evidence did not demonstrate that there was any risk of losing either of them or that their remuneration was otherwise inadequate. As in the decisions in
Essenbourne Pty Ltd v FC of T 2002 ATC 5201 and Walstern (supra) it is difficult to see that the payment of such premiums had the necessary connection with the carrying on of the business for the purpose of assessable income. The arrangement has every appearance of being an application of profit after derivation for the benefit of shareholders. The only benefit to the company in contributing premiums on employer shares which, thereafter, were limited to a value of $1 each was the distribution of such amounts for the benefit of Liu and Teh. Much of the arrangement has the earmarks of capital expenditure.

14. If the earlier finding that the premiums paid constituted a fringe benefit had not been made then a finding that such payments did not constitute an allowable deduction would be appropriate. However, that earlier finding resulted from a view that on balance, the premiums contributed a benefit to Liu and Teh in their capacity as employees rather than as shareholders. Consequently, and for consistency, it is appropriate to find that the provision of a fringe benefit payment to the FBTA Act does constitute an allowable deduction. This can be distinguished from the decision in Walstern where it was found that the contribution to the off-shore non-complying superannuation fund was not an allowable deduction although also a fringe benefit. There the contribution was made in one financial year when the taxpayer was the sole owner in equity of the moneys contributed and the contribution was of a capital nature. It was in the following year when the amount was allocated that the fringe benefit arose but no expense was incurred in that year by the taxpayer. Here the allocation of the premium was made on the same day that the premium was incurred.

15. It follows from the foregoing that the objection decisions in respect of objections to the amended assessments of income tax for ETA for the year ended 30 June 1996, 1997 and 1998 should be set aside and, in their stead, the objection be allowed in full.

16. The third issue in this matter is the amendment of income tax assessments in respect of Liu and Teh for the year ended 30 June 1996 to 1998 inclusive to include the amounts of premium allocated to them as


ATC 2241

assessable income. Here the respondent argued that the amounts were assessable income under Division 13A of the 1936 ITA Act. Alternatively, it was argued that the provisions of Part IV A of the Act operated to include the amounts in assessable income.

17. Given the effect of the earlier finding in relation to fringe benefits tax and the provisions of s 23L of the 1936 ITA Act it is appropriate to deal with this issue relatively briefly. I am satisfied that, for the purpose of Division 13A, Liu and Teh "acquired a share under an employee share scheme", "in respect of employment of the taxpayer" and the consideration was less than "the market value of the share" at the time that it was acquired. The incorporation and operation of ETA ESP was clearly an employee share scheme and the acquisition of employee shares was directly related to employment. The evidence showed clearly that ETA, Liu and Teh closely followed the directions of Coadys in the documentation and resolutions passed and there is no doubt that, at the time of application for employee shares, it was as clear as night following day that ETA would add value to those shares by an application of the premium payable on the employer shares. Consequently that 50% share of the premium should be included in assessing the market value of the shares. The evidence showed that no actual payment was made for the employee shares by either Liu or Teh. In assessing market value, I prefer the opinion of Mr Carter that a discount of 10% to allow for restriction on marketability should be allowed in arriving at market value. Mr Hasluck's valuation provides a greater discount primarily taking into account the possibility that the premium may not accrue the next day. I do not accept that there was any possibility of this.

18. Even if I am wrong in the foregoing analysis and the tax payers could successfully argue that the subscription on one day with the crediting of the premium to their account on the next day results in no increase in market value beyond the par value, I would have no difficulty in finding that the provisions of Part IV A include the value of such premiums in assessable income. Consideration of all the matter to which a decision maker must have regard pursuant to s 177D(b) clearly lead to the conclusion that ETA Liu and Teh carried out the scheme for the purpose of obtaining a tax benefit by the non-inclusion of assessable income which might reasonably be expected to have been so included.

19. However, notwithstanding these views, the provisions of s 23L of the 1936 ITA Act exempts income derived by way of the provision of a fringe benefit within the meaning of the FBTA Act. It is clear that this provision is designed to avoid double tax on fringe benefits which are subject to tax from the employer at rates of tax equal to maximum personal rates. It is difficult to see that Part IV A can apply to include such benefits in assessable income of an employee when also liable to FBT

20. It follows that the objection decisions in relation to the amended income tax assessments of Liu and Teh should be set aside and, in lieu thereof, the objections allowed in full.

21. As a result of the foregoing the fringe benefits tax assessments in question should be maintained and objections to the company and individual assessments of income tax should be allowed in full.


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