Test case litigation register

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as at 23 October 2020

INFORMATION

The Test Case Litigation Register (the Register) contains information about:

  • Cases approved for test case funding and their impact and status.
  • Cases declined for test case funding and the reasons why.
  • A list of all test case funded matters and their outcomes.

The Register is published after each Panel meeting takes place where applications are considered for funding.

Test Case Panel meeting dates and closing application dates

  • 1 December 2020 meeting: closing date for applications is 10 November 2020
  • 23 February 2021 meeting: closing date for applications is 2 February 2021
  • 4 May 2021 meeting: closing date for applications is 13 April 2021
  • 13 July 2021 meeting: closing date for applications is 22 June 2021
  • 21 September 2021 meeting: closing date for applications is 31 August 2021
  • 30 November 2021 meeting: closing date for applications is 9 November 2021

For queries related to the Test Case Litigation Register or the Test Case Litigation Program more generally please contact:

APPROVED MATTERS IN PROGRESS

ATO Reference: 26/2019-20
VenueFederal Court of Australia
IssueWhether an applicant's burden of proof under subsection 14ZZK(b) of the Taxation Administration Act 1953 will be satisfied:
  1. By adducing evidence suggesting that all or part of the Commissioner's methodology in making an assessment may have been flawed
  2. By adducing evidence that the Commissioner may have been mistaken as to relevant facts when making an assessment.
Why does the issue involve uncertainty and/ or contention?This matter is an appeal by the Commissioner from a decision of the AAT. The AAT overturned assessments on the basis that the member was satisfied that there was a possiblity that he Commissioner's methodology was flawed or that part of the assessment may have been miscalculated. This appears to be inconsistent with existing authorities, such as Commissioner of Taxation v Dalco (1990), which held that a taxpayer must not only show that the Commissioner was in error, but also provide evidence of their correct taxable income.
Impact on other taxpayers and mitigation strategiesThe uncertainty created by the AAT decision may have an impact on other proceedings in which a taxpayer is seeking to challenge an assessment by the Commissioner. A Federal Court decision addressing the uncertainty will provide clarity on the taxpayer's burden of proof.
StatusThe matter is progressing through the preliminary stages. No court timetable is in place.
ATO Reference: 25/2019-20
VenueFederal Court of Australia
IssueWhether the invalidity pension paid to the Taxpayer under the rules of the Military Superannuation Benefits Scheme (MSBS) is either:
  1. A superannuation income stream as defined in section 307-70 of the Income Tax Assessment Act 1997 (ITAA 1997) and sub-regulation 995.1.01(1) of the Income Tax Assessment Regulations 1997 (ITAR 1997) such that the pension payments are superannuation income stream benefits; or
  2. Not a superannuation income stream meaning that the payments are superannuation lump sums as defined in section 307-65 of the ITAA 1997.
Why does the issue involve uncertainty and/ or contention?There is little in the way of existing case law on whether or not military superannuation invalidity payments are superannuation income streams or superannuation lump sums under the ITAA 1997 and ITAR 1997 following amendments that were made with effect from 1 July 2007.
Impact on other taxpayers and mitigation strategiesA Court decision on these issues will provide guidance to other ex-ADF members in similar situations as to how their invalidity pensions payable from a Commonwealth military superannuation scheme should be properly taxed. There have been a number of requests for Private Rulings on this issue. In the event the invalidity pensions are not found to be superannuation income streams the pension payments will be taxable as superannuation lump sums.
StatusThe matter is proceeding through the preliminary stages with the Court. Arrangements for the hearing have not been decided.
ATO Reference: 24/2019-20 and 23/2019-20
VenueFederal Court of Australia
IssueWhether the invalidity pension paid to the Taxpayer under the rules of the Military Superannuation Benefits Scheme (MSBS):
  1. commenced to be paid before or after 20 September 2007; and is either:
  2. A superannuation income stream as defined in section 307-70 of the Income Tax Assessment Act 1997 (ITAA 1997) and sub-regulation 995.1.01(1) of the Income Tax Assessment Regulations 1997 (ITAR 1997) such that the pension payments are superannuation income stream benefits; or
  3. Not a superannuation income stream meaning that the payments are superannuation lump sums as defined in section 307-65 of the ITAA 1997.
Why does the issue involve uncertainty and/ or contention?There is little in the way of existing case law on whether or not military superannuation invalidity payments are superannuation income streams or superannuation lump sums under the ITAA 1997 and ITAR 1997 following amendments that were made with effect from 1 July 2007.
Impact on other taxpayers and mitigation strategiesA Court decision on these issues will provide guidance to other ex-ADF members in similar situations as to how their invalidity pensions payable from a Commonwealth military superannuation scheme should be properly taxed. There have been a number of requests for Private Rulings on this issue. In the event the invalidity pensions are not found to be superannuation income streams the pension payments will be taxable as superannuation lump sums.
StatusThe matter is proceeding through the preliminary stages with the Court. Arrangements for the hearing have not been decided.
ATO Reference: 017/2018-19
VenueFederal Court of Australia (Full Court)
IssueIn relation to the bankruptcy of a trustee:
  1. Is the right of indemnity ("the right") property of the trust to the exclusion of non-trust creditors or is the right the property of the bankrupt (personally) and then available to non-trust creditors?
  2. How should the statutory priority afforded to the Commissioner of Taxation, pursuant to section 109(1)(e) of the Bankruptcy Act 1966 (Cth), for Superannuation Guarantee Charge amounts owing, be applied; namely, should the priority be applied to the trust assets alone or to the assets of the trustee, or both?
Why does the issue involve uncertainty and/ or contention?There has been considerable undertainty and controvery around how the principles of trust law interact with the priority regime in insolvency law. The High Court of Australia's recent decision in Carter Holt Harvey Woodproducts v the Commonwealth [2019] HCA 20 went some way to clarify the position in relation to an insolvent corporate trustee, but it is unclear to what extent that decision resolves the uncertainty in relation to an individual trustee who has become personally insolvent.
Impact on other taxpayers and mitigation strategiesThis matter will have particular relevance to insolvency practitioners as they seek to correctly apply the law an ensure the proper functioning of the broader insolvency regime. However, it may also impact on employees of businesses that operate through a trust structure in the event that the business becomes insovlent. If the priority regime does not apply, those employees may not be able to recover the full amount of unpaid superannuation contributions in the event that their employer becomes insolvent.
StatusThe matter was heard on 28 February 2020. The Court's decision stands reserved.

DECLINED MATTERS

ATO Reference: 04/2020-21
Panel Meeting Date15 September 2020
IssueThe application related to a proposed appeal to the Full Federal Court in relation to the treatment of capital gains made by resident trusts with non-resident beneficiaries. The prior proceedings in the Federal Court was test case funded.

The applicants have sought funding in relation to two issues on appeal:
  1. Whether s 855-10 disregards a capital gain in circumstances where a share of the net income of a resident trust referable to a non-resident beneficiary's entitlement includes a capital gain (855-10 issue).
  2. Whether the trustee remains taxable under s 98 of the ITAA 1936 via the operation of s 115-220, independent of whether a beneficiary can disregard its s 115-215 gains (115-220 issue).
Panel ReasonsThe Panel noted that there was another matter due to be heard in late 2020 by the Full Federal Court that dealt with the issues set out in the funding application. The first instance decision in the other matter was wholly endorsed by the judge in the applicant's proceedings.

The Panel considered that the decision in the prior funded proceedings set out a full explanation of the law and represented a clear statement of principle. Further, Panel members agreed that if there was any residual ambiguity around the operation of the law, the other matter (which is further advanced) would likely delivery any desired clarification before the applicant's possible appeal.

The Panel unanimously agreed that the applicants' matter would not be an appropriate vehicle for test case and recommended that funding be delcined.

The Chair accepted the recommendation and declined funding.
ATO Reference: 03/2020-21
Panel Meeting Date15 September 2020
IssueThe application relates to proceedings before the Administrative Appeals Tribunal. Funding was sought in relation to two primary issues:
  1. Whether the Applicant is a statutory office holder of equivalent seniority to a head of a Department of the Public Service of a State for the purposes of regulation 293-145.01(g) of the Income Tax Assessment Regulations 1997 (ITAR) and exempt from tax under Division 293 by operation of Subdivision 293-E of the Income Tax Assessment Act 1997 (ITAA 1997).
  2. Alternatively, whether the Commonwealth taxation power does not extend to imposing Division 293 tax upon a person in the Applicant's position and should be read down so as not to apply to such an officer.
Panel ReasonsThe Panel noted that there had been a number of past cases raising similar questions regarding various statutory appointments and the regime contemplated by Subdivision 293-E of the ITAA 1997.

In view of the existing case law, the Panel remarked that a decision of the AAT in the applicant's matter would be unlikely to provide further law clarification. Additionally, the Panel considered that the current matter turned largely on its facts, particularly specifics of the applicant's appointment and its nature.

The Panel noted that the materials provided dealt primarily with the 'statutory office holder' issue but did not include any substantive commentary in relation to the constitutional powers issue raised in the application.

The Panel recommended that funding be declined. The Chair accepted the recommendation and declined funding.
ATO Reference: 27/2019-20
Panel Meeting Date14 July 2020
Issue
  1. Whether the applicant was an Australian resident for the 2009 to 2014 income years (relevant years), pursuant to the "ordinary concepts" test?
  2. Whether the applicant was an Australian resident during the relevant income years, pursuant to the "domicile" test?
  3. If the applicant was a dual resident of Australia and Thailand during the relevant income years, whether the double tax agreement (DTA) between Australia and Thailand applies to treat Mr Pike as solely a resident of Thailand (and not Australia), for the relevant years.
Panel ReasonsThe Panel noted that the questions raised in relation to the Australian residency tests are factual in nature and do not identify an uncertainty in the operation of the law.

Similarly, it was considered that the DTA issue does not identify a controversy over the tiebreaker test, but rather questions in relation to whether the Court applied the test correctly.

The Panel observed that the matter does not have significance for a substantial section of the public, or commercial implications for an industry.

For these reasons, the Panel acknowledged the matter does not satisfy funding criterion and expectations and recommended that funding be declined.

The Chair agreed with the recommendation and declined funding.
ATO Reference: 21/2019-20
Panel Meeting Date5 May 2020
Issue
  1. Whether the applicant made a gain on repayment of the Bonds as a result of the application of Subdivision 960-D of the Income Tax Assessment Act 1997
  2. Whether the gains from the bonds are income according to ordinary concepts under section 6-5 of ITAA97;
  3. If the gains are capital in nature, are they 'currency exchange gains' assessable as income under former section 82Y of former Division 3B of Part III of the Income Tax Assessment Act 1936 ("section 82Y", which has since been repealed)
  4. Whether the Commissioner is bound by a Private Binding Ruling issued to the applicant to the extent that it stated that section 82Y did not apply.
Panel ReasonsThe Panel noted that the application raises a number of issues which are highly complex and that litigation in relation to the threshold issue may result in legal precedent. However, the Panel unanimously agreed that the factual circumstances affect relatively few taxpayers and a Court decision would have limited impact on the broader community.

Considering the related issues, the Panel collectively agreed that the issues are factually confined and do not warrant funding. Relatedly, the Panel also observed that some of the identified issues referred to repealed provisions and, consequently, the number of taxpayers in similar circumstances would decline in coming years.

In view of this, the Panel considered that the matter was not an appropriate vehicle for test case funding.

The Panel recommended the funding be declined. The Chair accepted the recommendation and declined funding.
ATO Reference: 16/2019-20
Panel Meeting Date4 March 2020 (Out of session)
IssueWhether:
  1. the applicant's development works are a 'supply' for the purposes of section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 ("GST Act"), in whole or in part;
  2. the applicant's development works are a 'taxable supply' for the purposes of section 9-5 of the GST Act, in whole or in part;
  3. the applicant's development work comprises non-monetary consideration for the supply of land pursuant to sections 9-15 and 75-10 of the GST act, in part or completely.
Panel ReasonsThe Panel acknowledged that the matter involves contention around a distinct legal issue. However, the Panel unanimously took the view that the issue is confined to particular property developments in the ACT and that it would not have significance for a substantial section of the public or for an industry. For this reason, the Panel agreed the matter is not suitable for test case funding.

For the above reasons the Panel recommended that funding be declined.

The Acting Chair of the Panel agreed with the recommendation of the Panel and decided to decline test case funding for this matter.
ATO Reference: 19/2019-20
Panel Meeting Date25 February 2020
IssueWhether a CGT event will occur when legal title in a property transfers to the beneficiaries of a trust as joint tenants, particularly in view of section 106-50 of the Income Tax Assessment Act 1997.
Panel ReasonsPrior to considering the taxpayer's question, the Panel observed the matter involves uncertainty as to the facts of the case and uncertainty as to whether a significant segment of the public would be affected. The application is also conditional on the stamp duty position.

The Panel expressed doubts about whether the requisite factual findings would be made. In addition, the Panel agreed that the underlying legal question may be resolved with reference to existing trust and taxation laws.

For these reasons, the Panel expressed an agreed concern that the matter is an unsuitable vehicle for law clarification and recommended funding be declined.

The Acting Chair accepted the recommendation and declined funding.
ATO Reference: 18/2019-20
Panel Meeting Date25 February 2020
IssueWhether:
  1. The applicant was entitled to the rebate pursuant to section 159ZRA of the Income Tax Assessment Act 1936 for lump sum payments in arrears
  2. Whether the settlement sum received following legal proceedings to enforce an income protection insurance policy was considered income or capital and, if capital, whether the un-dissected lump sum is exempt under section 118-37 of the Income Tax Assessment Act 1997.
Panel ReasonsThe Panel observed that the matter is fact dependent and the conclusion that the payment involves insurance proceeds for lost income and the interpretation of s159ZRA does not appear to raise matters of general contention worthy of funding.

The Panel agreed that the facts do not appear to identify a controversy in relation to the settled case law. The Panel also noted that concerns had been raised regarding the Administrative Appeals Tribunal's (AAT) decision not to re-open the hearing and whether that would be an issue on appeal. It was considered that any questions regarding the AAT's decision would be of no interest for the purposes of test case funding.

Further, the Panel considered that the matters raised would not have a broader impact on the community.

The Panel recommended that funding be declined.

The Acting Chair accepted the recommendation and declined funding.
ATO Reference: 17/2019-20
Panel Meeting Date25 February 2020
IssueWhether:
  1. a liability for Fringe Benefits Tax (FBT) arises upon FBT registration
  2. the Commissioner has the power to re-determine a taxpayer's decision in relation to the nature of remuneration provided to a person
  3. registration for any tax is a precondition to a liability arising
Panel ReasonsThe Panel observed that the issues do not appear to be consistent with the primary reasons given by the Commissioner at objection. While the Commissioner's objection decision refers to questions relating to FBT registration, these comments do not form part of the substantive basis for the decision that issued. Consequently, the Panel considered that the questions raised in the application were unlikely to be a feature of the court's consideration.

The Panel further noted that the legal principles in relation to the source of an FBT liability and FBT registrations are well-settled areas of the law. Noting this, Panel members unanimously agreed the application did not raise any legal questions for which there was significant doubt or contention.

The Panel recommended that funding be declined.

The Acting Chair agreed with the recommendation and declined funding.
ATO Reference: 14/2019-20
Panel Meeting Date13 February 2020 (Out of session)
IssueWhether, for the relevant activities of riding in horse races and barrier trials, the Applicant was the employer of those jockeys for superannuation guarantee purposes, pursuant to paragraph 12(8)(a) of the Superannuation Guarantee (Administration) Act 1992 (SGAA), and was, as such, liable to make payments to jockeys and, as such
Panel ReasonsThe Panel agreed that this matter is not an appropriate vehicle for the purposes of test case litigation funding. The Panel's view was based on the fact the special leave application does not raise an arguable point of law concerning the construction of section 12 (8)(a) of the SGAA or a question of law of public importance. The Panel considered that the full Federal Court's decision achieved the requisite clarification around the test case issue and unanimously recommended to decline funding.

The Panel also remarked that the applicant failed to discharge the onus of proof in the full Federal Court proceedings having regards to deficiencies in its evidence. This also contributed towards the Panel's view of the unsuitability of this matter for test case funding. For these reasons, the Panel's recommendation was to decline funding.

The Acting Chair of the Panel agreed with the recommendation of the Panel and decided to decline test case funding for this matter.
ATO Reference: 13/2019-20
Panel Meeting Date30 January 2020 (Out of session)
IssueWhether, for the relevant activities of riding in horse races and barrier trials, the Applicant was the employer of those jockeys for superannuation guarantee purposes, pursuant to paragraph 12(8)(a) of the Superannuation Guarantee (Administration) Act 1992 (SGAA), and was, as such, liable to make payments to jockeys and, as such
Panel ReasonsThe Panel unanimously agreed that the matter does not involve a question of law of public importance and the decision of the Full Court has delivered law clarification on the issue originally funded for the purposes of a test case.

The Panel also noted the Federal Court's observation that the Applicant did not discharge the onus of proof in respect of its evidence. The Panel added that if the Applicant were to persuade the Court that the Full Court erred in this respect, it would be because of the facts of the particular case rather than considering a question of law.

For these reasons the Panel recommended funding be declined.

The Acting Chair accepted the recommendation and declined funding.
ATO Reference: 012/2019-20
Panel Meeting Date10 December 2019
IssueThe application related to the meaning of "arm's length dealing" in section 955-1 of the Income Tax Assessment Act 1997, its application for determining non-arm's length income (NALI) of a superannuation fund under section 295-550, and its difference from the meaning of "market value" in section 955-1.
Panel ReasonsThe Panel noted that the taxpayer has not filed an appeal. Consequently, there is uncertainty in relation to the grounds of any appeal. The Panel noted that the decision of the AAT appeared to be a straightforward, orthodox application of the NALI provisions and did not appear to be controversial.

The Panel observed that the taxpayer's application did not identify a particular question of law requiring clarification, but rather appeared to question of the application of established principles to the facts.

The Panel considered that the appeal would not have significance for a substantial section of the public or have significant commercial implications for a particular industry.

The Panel recommended that funding be declined. The Chair accepted the recommendation and declined funding.
ATO Reference: 011/2019-20
Panel Meeting Date10 December 2019
IssueWhether:
  1. A determination of the 'net income' of a trust estate for the purposes of section 95(1) of the Income Tax Assessment Act 1936 requires that the trust estate be treated as if the trustee was a resident individual in the relevant income year
  2. A foreign exchange (forex) realisation loss is properly disregarded under Division 775 of the Income Tax Assessment Act 1997 for the purposes of determining whether a taxpayer is entitled to a deduction.
Panel ReasonsThe Panel noted that the case is factually dense and was unlikely to provide clarification of the law beyond its application to the narrow factual basis of the current matter.

The Panel observed that the existing ATO view on the issue is clear and consistent with the existing case law. As such, the matter is unlikely to be precedential.

The Panel also noted that it may not be in the public interest to fund this matter particularly after the Court had, at first instance, considered a potential application of Part IVA of the Income Tax Assessment Act 1936.

The Panel recommended that funding be declined. The Chair accepted the recommendation and declined funding.
ATO Reference: 010/2019-20
Panel Meeting Date10 December 2019
IssueWhether payments made by a company while under a deed of company arrangement (DOCA) were entered into on behalf of the company under the authority of the deed administrators within the meaning of s 588FE(2B)(d)(i) of the Corporations Act 2001
Panel ReasonsThe Panel observed that the proceeding related to a narrow, nuanced set of facts with a confined technical scope. As such, it appears that the matter would turn on the terms of the individual DOCA and would be unlikely to have any broader significance beyond the current dispute.

Consequently, the Panel agreed that it would not be in the public interest for funding to be granted in this matter.

The Panel recommended that funding be declined. The Chair accepted the recommendation and declined funding.
ATO Reference: 009/2019-20
Panel Meeting Date10 December 2019
IssueWhether the supply of particular salad products combining particular ingredients (for example, Caesar salad) contained in a disposable bowl is food of a kind that is "food marketed as a prepared meal" in paragraph 38-3(1)(c) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and in Item 4 of clause 1 of Schedule 1 to the GST Act
Panel ReasonsThe Panel noted that there are currently no formal proceedings on foot and reflected that consideration of funding at this stage could be premature.

The Panel observed that the test set out in the GST Act requires consideration of product marketing, rather than a bare analysis of the product itself. The panel acknowledged that it would be in the public interest to fund a case that would provide clarity on the marketing test, and the concept of what constitutes a "prepared meal" for the purposes of the GST Act. However, the Panel also noted that the statutory test relies heavily on the facts of a particular case; consequently any case will be determined primarily on its facts.

Notwithstanding the applicant's claim that any case precedent would apply to entities at both the wholesale and retail levels, no retailer has been identified as a party to the proposed application.

The Panel noted that the applicant is a wholesaler of food products and observed that the outcome of the matter would rest on a narrow set of circumstances peculiar to a small number of taxpayers. The impact of a marketing test is more pronounced in the context of a retail transaction as compared to a wholesaler. In view of this, the Panel noted that a matter involving wholesale transactions may not be the ideal vehicle to achieve law clarification.

The Panel noted, and the Chair agreed, that in principle there would be a public interest in funding proceedings to examine the test in subsection 38-3(1) in the context of the retail environment. However, the Panel also noted that any further applications in relation to the issue would need to include sufficient detail in relation to the marketing aspect of the test by way of evidence.

The Panel noted that absent certainty in relation to the parties and product marketing at both the wholesale and retail level, this application is premature.

The Panel recommended that funding be declined. The Chair accepted the recommendation and declined funding.
ATO Reference: 008/2019-20
Panel Meeting Date10 December 2019
IssueWhether an agent who receives improper tax refunds on behalf of a client is the "recipient" of the funds for the purposes of section 8AAZN of the Taxation Administration Act 1953
Panel ReasonsThe Panel acknowledged that the matter raises legal questions for which there is limited judicial consideration, and that the interpretation favoured by the Victorian County Court at first instance would be arguable. However, the Panel expressed concern as to whether the Commissioner's appeal would be progressed in a timely manner, particularly in view of delays throughout the first instance proceedings.

The Panel discussed the suitability of funding in view of the factual background to the dispute. In particular, the Panel discussed their concerns around allegations that the applicant lodged Business Activity Statements for a client without proper authority.

The Panel recommended that funding be declined. The Chair accepted the recommendation and declined funding.
ATO reference: 005/2019-20
Panel Meeting Date24 September 2019
IssueWhat is the 'the price (excluding wine tax and GST) for which the wine was sold' for the purposes of assessable dealing AD1a in the Assessable Dealings Table in subsection 5-5(4) of A New Tax System (Wine Equalisation Tax) Act 1999?
Panel ReasonsThe Panel considered that the legal issue raised in the application was not contentious and noted that the interpretation advanced in the taxpayer's application was contrary to the policy intent.

The Panel noted that the interpretation adopted by the Commissioner, and seemingly accepted by industry, has been settled in case law since the Sales Tax regime (the predecessor to the WET regime).

As such, the Panel considered that there did not appear to be widespread disagreement with the Commissioner's current interpretation of the relevant provision.
ATO reference: 006/2019-20
Panel Meeting Date24 September 2019
Issue
  1. Does section 855-10 of the Income Tax Assessment Act 1997 (ITAA 1997) disregard a capital gain taxed to the trustee under section 115-220 in circumstances where the trustee of a resident trust makes a non-resident beneficiary presently or specifically entitled to the whole or a portion of a capital gain that is taken into account in working out the trust's net income (855-10 issue)?
  2. Where a net capital gain is taken into account in working out the trust estate's net income, Subdivision 115-C provides specific rules for the taxation of the gain outside the general operation of Division 6 of the Income Tax Assessment Act 1936 (ITAA 1936).
  3. Specifically, where a non-resident beneficiary is presently or specifically entitled to the whole or a portion of the capital gain:
    1. section 115-220 provides for the beneficiary's share of the gain to be assessed to the trustee under section 98 of the ITAA 1936, and
    2. section 115-215 treats an amount determined as the beneficiary's share of the trust capital gain as if it was the beneficiary's capital gain for the purpose of assessing the beneficiary.
  4. Whether, in the 2017 income year, Division 855 applies for the benefit of the taxpayer because the non-resident beneficiary was made absolutely entitled to the relevant non-TAP assets such that the capital gains are treated as being held directly by the non-resident. Therefore, the non-resident beneficiary can disregard the 2017 capital gains under section 855-40, or in the alternative, under section 855-10 (the CGT Event E5 issue)
Panel ReasonsThe Panel considered that there was some disagreement between the Commissioner's view of section 855-10 and the interpretation preferred by the taxpayer (and some tax practitioners).

On balance, the Panel considered that, while a potential point of contention appears to exist, the alternative interpretation is at odds with the intent of the legislation and public policy.

For this reason, the Panel agreed that the case would not be in the interest of the public to pursue and is not a suitable vehicle to test the operation of section 855-10.
ATO reference: 003/2019-20
Panel Meeting Date26 August 2019
IssueWhether the taxpayer is entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), Divisions 40 and 42 of the ITAA 1997 in relation to a short term holiday rental property.
Panel ReasonsThe Panel considered that the principles around the essential character of a loss or outgoing are well-settled case law principles and that the issues in the present matter turn primarily on the facts.

However, the Panel considered that the issue in relation to the appropriate method of apportionment, in circumstances where properties have different rental values at different times; may benefit from further clarification.

Nonetheless, the Panel noted there is a further-advanced case currently before the AAT. The Panel added that the general policy of the program is not to fund applications made by taxpayers in the AAT as a decision of the AAT does not provide a precedent and achieve the level of law clarification that the program has been established to obtain.

FINALISED APPROVED MATTERS

Name: Eichmann v Commissioner of Taxation [2020] FCAFC 155
VenueFederal Court of Australia (Full Court)
IssueWhether, for the purposes of the "active asset test" in Subdivision 152-A, the words "is used, or held ready for use, in the course of carrying on a business" in paragraph 152-40(1)(a) of the ITAA 1997 requires the taxpayer to demonstrate a use that is a 'direct functional relevance' or that is 'a constituent part or component of the day to day business activities' to the carrying on of the normal day-to-day activities of the business which are directed to the gaining or production of assessable income in a way that is 'integral' to the carrying on of the business.
Decision or OutcomeThe Court (McKerracher, Steward and Stewart JJ) handed down a unanimous decision and on 18 September 2020. Their Honours held that, in the context of the taxpayer's business company's construction business, the vacant land that was mainly used for storage was an active asset as it satisfied the requirements of paragraph 152-40(1)(a) of ITAA 1997.
Why does the issue involve uncertainty and/ or contention?The "active asset test" is one of the basic conditions for access to the small business CGT concessions. Although there have been changes to these concessions over time, the requirement that the asset was "active" and used in the course of carrying on the business has remained consistent.

The matter provides an opportunity for the Commissioner to seek clarity on the extent of this connection between the use of the land and the actual operations of the business to render the asset as an active asset.
StatusThe Court handed down its decision on 18 September 2020.

A Decision Impact Statement will be issued by the ATO in due course.
Name: N & M Martin Holdings Pty Ltd v Commissioner of Taxation [2020] FCA 1186
VenueFederal Court of Australia
IssueWhether section 855-10 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to disregard a capital gain in circumstances where a share of the net income of a resident non-fixed trust referable to a non-resident beneficiary's entitlement includes a capital gain.
Decision or OutcomeThe Court (Steward J) held that the applicants had not shown that the earlier judgment of Thawley J in Peter Greensill Family Co Pty Ltd (as trustee) v FCT [2020] FCA 559 ('Greensill') was plainly wrong. Following Greensill, his Honour decided that the non-resident beneficiary was not entitled to rely on section 855-10 of the ITAA 1997 to disregard his capital gains.
Why does the issue involve uncertainty and/ or contention?There has been contention whether section 855-10 of the ITAA 1997 can be construed broadly so as to apply to beneficiaries of non-fixed trusts. At the time of funding approval, this issue had not been subject to judicial consideration. This matter provided an opportunity for the Commissioner to seek clarity and resolve that contention.
StatusThe Court handed down its decision on 18 August 2020. The taxpayer has filed an appeal to the Full Federal Court in respect of the 855-10 issue.
Name: Commissioner of Taxation v Addy [2020] FCAFC 135
VenueFederal Court of Australia (Full Court)
IssueWhether the taxpayer, firstly is a resident for tax purposes in Australia. Secondly whether the non-discrimination article in Australia's tax treaty with the United Kingdom (the DTA) is infringed as the taxpayer, as the holder of a working holiday maker visa paying income tax at working holiday maker rates, is subject to tax that is other or more burdensome than the tax to which Australian nationals, in the same circumstances, are or may be subjected.
Decision or OutcomeIn relation to residency, the Court (Derrington, Davies and Steward JJ) unanimously held that the taxpayer was a resident of Australia for tax purposes. This was because she had been in Australia for more than 183 days and the Commissioner did not form a state of satisfaction that she had a usual place of abode overseas and that she did not have an intention of residing in Australia. The Court indicated that had the Commissioner formed the relevant state of satisfaction that she would have been found to have been a non-resident.

In relation to infringement of the non-discrimination article, the majority (Derrington and Steward JJ) held that the working holiday maker tax rates did not infringe the non-discrimination article of the DTA. This was because the provisions applied on the basis of the type of visa held by the taxpayer (417 working holiday visa) and so did not solely discriminate based on nationality. They found that Ms Addy chose to come to Australia on the working holiday maker visa, and as such subject herself to the working holiday maker tax rates. Instead she could have applied for another visa and have other tax rates apply to her.
Why does the issue involve uncertainty and/ or contention?This matter involved testing of new provisions imposing the working holiday maker tax rates (inserted by the Income Tax Rates Amendment (Working Holiday Maker Reform) Act 2016) in respect of contentions that they ingringe the non-discrimination article in Australia's tax treaties.

The case has the potential to establish principles of law that go beyond the working holiday maker provisions, particularly in relation to the operation of the non-discrimination article in Australia's tax treaties.
StatusThe Full Court handed down its decision on 6 August 2020.
Name: GDGR v Commissioner of Taxation [2020] AATA 766
VenueAdministrative Appeals Tribunal
IssueWhether an invalidity pension paid under the rules of a Commonwealth Government military superannuation scheme, is:
  1. a superannuation income stream as defined in section 307-70 of the ITAA 1997 and sub-regulation 995-1.01(1) of the ITAR 1997 such that the pension payments are superannuation income stream benefits; or
  2. not a superannuation income stream meaning that the payments are superannuation lump sums as defined in section 307-65 of the ITAA 1997.
Decision or OutcomeThe Tribunal (Justice Logan RFD, Deputy President) decided that the invalidity benefits paid to the taxpayer in the relevant income years are taxed as a superannuation lump sum and a disability superannuation benefit.
Why does the issue involve uncertainty and/ or contention?There is little in the way of existing case law on whether or not military superannuation invalidity payments are superannuation income streams or superannuation lump sums under the ITAA 1997 and ITAR 1997 following amendments that were made with effect from 1 July 2007.
StatusThe Tribunal handed down its decision on 30 March 2020. The Commissioner has filed an appeal.
Name: Burns v Commissioner of Taxation [2020] AATA 671
VenueAdministrative Appeals Tribunal
IssueWhether an invalidity pension paid under the rules of a Commonwealth Government military superannuation scheme is:
  1. a superannuation income stream as defined in section 307-70 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) and sub-regulation 995-1.01(1) of the Income Tax Assessment Regulations 1997 (Cth) (ITAR 1997) such that the pension payments are superannuation income stream benefits, or
  2. not a superannuation income stream meaning that the payments are superannuation lump sums as defined in section 307-65 of the ITAA 1997.
Decision or OutcomeThe Tribunal (Justice Logan RFD, Deputy President) decided that the invalidity benefits paid to the taxpayer in the relevant income years are taxed as a superannuation lump sum and a disability superannuation benefit.
Why does the issue involve uncertainty and/ or contention?There is little in the way of existing case law on whether or not military superannuation invalidity payments are superannuation income streams or superannuation lump sums under the ITAA 1997 and ITAR 1997 following amendments that were made with effect from 1 July 2007.
StatusThe Tribunal handed down its decision on 25 March 2020. The Commissioner has filed an appeal.
Name: Douglas v Commissioner of Taxation [2020] AATA 494
VenueAdministrative Appeals Tribunal
IssueWhether an invalidity pension paid under the rules of a Commonwealth Government military superannuation scheme is:
  1. a superannuation income stream as defined in section 307-70 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) and sub-regulation 995-1.01(1) of the Income Tax Assessment Regulations 1997 (Cth) (ITAR 1997) such that the pension payments are superannuation income stream benefits, or
  2. not a superannuation income stream meaning that the payments are superannuation lump sums as defined in section 307-65 of the ITAA 1997.
Decision or OutcomeThe Tribunal (Justice Logan RFD, Deputy President) decided that the invalidity benefits paid to the taxpayer in the relevant income year is taxed as a superannuation lump sum and a disability superannuation benefit.
Why does the issue involve uncertainty and/ or contention?There is little in the way of existing case law on whether or not military superannuation invalidity payments are superannuation income streams or superannuation lump sums under the ITAA 1997 and ITAR 1997 following amendments that were made with effect from 1 July 2007.
StatusThe Tribunal handed down its decision on 13 March 2020. The Commissioner has filed an appeal.
Name: Melbourne Apartment Project Pty Ltd (as Trustee for Melbourne Apartment Project) v Commissioner of Taxation [2019] FCA 2118
VenueFederal Court of Australia
IssueWhether the sale of residential premises situated in an apartment complex is a "supply of accommodation" for the purposes of subparagraph 38-250(1)(b)(i) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
Decision or OutcomeThe Court held that the sale of apartments by the taxpayer constituted a "supply of accommodation" for the purposes of the GST Act.

The Court held that the words "supply of accommodation" within the relevant provision are not a compound expression. The Court found that read together, those words do no more than apply the definition of a "supply" to a particular subject "accommodation". The words read together convey no separate and distinct meaning as a compound phrase.

The Court also held the natural and ordinary meaning of "accommodation" includes an apartment or any premises that are used by a person as their place of residence whether by licence, lease or freehold ownership.

Consequently, it was held that a "supply of accommodation" included the sale of property and was not confined to the provision of more temporary accommodation arrangements.
Why does the issue involve uncertainty and/ or contention?It is unclear from the text of the provisions whether "supply of acommodation" encompasses the sale of apartments or houses (as contended by the taxpayer) or whether it is confined to the provision of a service of providing lodgings in boarding houses and other residential rental facilities (the current view of the Commissioner)
StatusThe Court handed down its decision on 19 December 2019.
Name: Commissioner of Taxation v Scone Race Club Limited [2019] FCAFC 225
VenueFederal Court of Australia (Full Court)
IssueWhether the taxpayer is liable to pay riding fees to jockeys pursuant to paragraph 12(8)(a) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA) and as such, is considered to be the employer of those jockeys for superannuation guarantee purposes with respect to those payments.
Decision or OutcomeThe Full Court held by majority (Steward and Derrington JJ, Griffiths J dissenting) that the balance of the evidence supported the conclusion that the taxpayer was liable to pay riding fees to jockeys within the meaning of paragraph 12(8)(a) of the SGAA, and for the purposes of that Act was therefore deemed to be the employer of those jockeys.

Griffiths J dissented, finding that the primary judge did not fall into an appellable error in the weighting he attributed to the evidence before the Court.

His Honour found that in accordance with the industry custom and practice, riding fees were paid to jockeys by the taxpayer on behalf of owners, with whom the liability rested.
Why does the issue involve uncertainty and/ or contention?The decision has provided clarity as to the employer of the persons covered by paragraph 12(8)(a) of the SGAA with respect to riding fees paid to jockeys.
StatusThe Court handed down its decision on 16 December 2019.
Name: Commissioner of Taxation v Racing Queensland Board [2019] FCAFC 224
VenueFederal Court of Australia (Full Court)
IssueWhether the taxpayer is liable to make payments to jockeys pursuant to paragraph 12(8)(a) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA) and as such, is considered to be the employer of those jockeys for superannuation guarantee purposes with respect to those payments.
Why does the issue involve uncertainty and/ or contention?The decision has provided clarity as to the employer of the persons covered by paragraph 12(8)(a) of the SGAA with respect to riding fees paid to jockeys.
Decision or OutcomeThe Full Court unanimously held that the taxpayer was liable for the payment of riding fees to jockeys for the purposes of paragraph 12(8)(a) of the SGAA and, consequently, the taxpayer is deemed to be the jockeys' employer for the purposes of that Act with respect to those payments.

Their Honours held that the arrangements in place amounted to a contractual relationship between the taxpayer and the jockeys under which the taxpayer agreed to pay riding fees to the jockeys if they participated in a regulated race.
StatusThe Court handed down its decision on 16 December 2019.
Name: Commissioner of Taxation v Sharpcan Pty Ltd [2019] HCA 36
VenueHigh Court of Australia
IssueWhether the amount incurred by the Trustee of the Trust for the allocation to it of 18 gaming machine entitlements (GMEs) under Part 4A of the Gaming Regulations Act 2003 (Vic) was capital or of a capital nature, and therefore not deductible under section 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997). If capital, whether the amount could be deducted over 5 years under section 40-880 of the ITAA 1997.
Decision or OutcomeOn 16 October 2019 the High Court of Australia unanimously decided that the expenditure made to acquire the 18 GMEs was of a capital nature and, consequently, was not deductible under section 8-1 of the ITAA 1997. The Court also held that the requirements of section 40-880 of the ITAA 1997 were not made out.

In relation to section 8-1 of the ITAA 1997, the Court observed that the four factual matters that underpinned the majority opinion in the Full Federal Court did not speak to the question of the character of the purchase price of the GMEs.

Instead the HCA stated that authority is clear that the question of whether the GMEs are considered to be capital purchases should be answered with reference to the advantage sought to be obtained from the acquisition. Relevantly, an acquisition will be capital where the means of acquisition is a "once-and-for-all outgoing" for an enduring advantage to the business. The Court held that the GMEs were acquired as enduring assets of the business for the purpose of generating ongoing income and, consequently, the expnditure to acquire the GMEs was an outgoing of capital.

In relation to section 40-880 of the ITAA 1997, the Court concluded that the expenditure was not incurred 'to preserve (but not enhance) the value of goodwill' nor was the value of a GME was 'solely attributable to the effect [the GME] has on goodwill'. Rather their value resided in their capacity to generate gaming income and the fact that they could be sold and transferred to other venue operators. As such, the requirements for a deduction under section 40-880 were not made out.
Why does the issue involve uncertainty and/ or contention?The case raised important questions about the basic principles to be applied in characterising an outgoing as an affair of revenue or capital. As to section 40-880, the case was the first instance in which significant features of that section have been considered judicially by the High Court.
StatusThe High Court handed down its decision on 16 October 2019.

If you think that you have an issue which may be an issue that the ATO seeks to test, please contact the Test Case Litigation Program at testcaselitigationprogram@ato.gov.au.

DISCLAIMER: There is no guarantee that a case will produce the law clarification sought and that the litigation underway may have consequences for other taxpayers.

Last updated: 23 October 2020

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