Decision impact statement
Picton Finance Limited and Commissioner of Taxation
Venue: Administrative Appeals Tribunal
Venue Reference No: 2011/2379-2380
Judge Name: Mr P W Taylor SC, Senior Member
Judgment date: 5 March 2013
Appeals on foot: No
Decision Outcome: Unfavourable
Impacted Advice
Relevant Rulings/Determinations:- Not applicable
Subject References:
Income tax
Income
Foreign income
Shares
Acquisition of shares
Disposal of shares
Securities as trading stock
Trading stock valuation
Income tax penalty
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Précis
Outlines the ATO response to a decision concerning the tax treatment of the profit on the sale of shares in an Australian publicly listed company which were bought and sold on behalf of a company incorporated in Vanuatu.
Brief summary of facts
The Applicant was a company incorporated in Vanuatu. Its only activity was to invest in an Australian resident company.
Between September 2004 and October 2007, the Applicant acquired a substantial number of shares in the Australian resident company in three off market transactions. From about May to October 2007, the Applicant sold most of those shares in another three off market transactions.
Between August 2007 and April 2008, the Applicant bought and sold more shares in the Australian resident company on the Australian Stock Exchange. The transactions were carried out by an Australian stockbroker.
The Commissioner issued default assessments under section 167 of the Income Tax Assessment Act (ITAA 1936) to the Applicant for the 2007 and 2008 income tax years and imposed penalties. The Applicant was assessed on the profit from the sale of the shares, on the basis that it was Australian sourced income derived in the course of a share trading business, or otherwise for the purpose of profit making.
The Applicant objected to the Commissioner's assessments. The Commissioner disallowed the Applicant's objection to the 2007 income year but partly allowed the objection to the 2008 income year. The Applicant applied to the AAT for a review of the objection decision.
Issues decided by the court
The Tribunal set aside the decision under review in relation to the 2007 tax year and remitted to the Commissioner for redetermination in accordance with the Tribunal's reasons. The decision under review in relation to the 2008 tax year was affirmed.
The Tribunal found that the profit was assessable income of the Applicant for both income years on the basis that the profit on the sale of the shares was derived as part of a profit-making undertaking or scheme. However, on the basis of information made available at and after the hearing, the Tribunal found that the incorrect value was used for the cost of the shares for the 2007 year. This affected the amount of profit to which the Applicant was assessable.
The Tribunal concluded that the penalties had been correctly imposed. The Tribunal also found that there were no grounds for remitting the penalty - but noted that the penalty would be reduced upon the amendment of the 2007 assessment to take account of the AAT decision.
ATO view of Decision
The decision of the Tribunal was based solely on the facts in this particular case. It should not create a precedent for cases in the future.
Administrative Treatment
Implications for ATO precedential documents (Public Rulings & Determinations etc)
Not applicable
Implications on Law Administration Practice Statements
Not applicable
Court citation:
[2013] AATA 116
2013 ATC 10-298
(2013) 93 ATR 876
Legislative References:
Income Tax Assessment Act 1936
s 6
s 167
Income Tax Assessment Act 1997
s 70-10
s 70-30
s 70-45
Taxation Administration Act 1953
s 14ZZK
s 284-75
s 284-90
s 284-220
s 298-20
Tax Laws Amendment (2010 Measures No. 1) Act 2010
The Act
Case References:
Australian Machinery and Investment Company Limited v Deputy Commissioner of Taxation
(1946) 180 CLR 9
BAE Systems Australia (NSW) Pty Ltd v Federal Commissioner of Taxation
(2008) 69 ATR 567
[2008] FCA 48
Bailey v Federal Commissioner of Taxation
(1977) 136 CLR 214
(1977) 7 ATR 251
77 ATC 4096
Commissioner of Taxation v Kirk
[1900] AC 588
Commissioner of Taxation (WA) v D & W Murray Limited
(1929) 42 CLR 332
Esquire Nominees Ltd v Federal Commissioner of Taxation
[1973] HCA 67
129 CLR 177
3 ATR 105
72 ATC 4076
Federal Commissioner of Taxation v Dalco
[1990] HCA 3
168 CLR 614
90 ALR 341
20 ATR 1370
90 ATC 4088
Federal Commissioner of Taxation v Lewis Berger & Sons (Australia) Limited
(1927) 39 CLR 468
Federal Commissioner of Taxation v St Hubert's Island (in liquidation)
(1978) 138 CLR 210
78 ATC 4104
8 ATR 452
Federal Commissioner of Taxation v United Aircraft Corporation
(1943) 68 CLR 525
Gashi v Commissioner of Taxation
2012 ATC 20-325
[2012] FCA 638
Gauci v Federal Commissioner of Taxation
(1975) 135 CLR 81
5 ATR 672
75 ATC 4257
George v Federal Commissioner of Taxation
(1952) 86 CLR 183
Lovell & Christmas Limited v Commissioner of Taxes
[1908] AC 46
Macmine Pty Ltd v Federal Commissioner of Taxation
(1979) 24 ALR 217
9 ATR 638
79 ATC 4133
McCormack v Federal Commissioner of Taxation
(1978-1979) 143 CLR 284
[1979] HCA 18
9 ATR 610
79 ATC 4111
Mount Morgan Gold Mining Company Ltd v Commissioner of Income Tax (Queensland)
(1922-1923) 33 CLR 76
Nathan v Federal Commissioner of Taxation
(1918) 25 CLR 183
Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd
(1957) 98 CLR 93
Tariff Reinsurances Limited v Commissioner of Taxes (Vic.)
(1938) 59 CLR 194
Thorpe Nominees Pty Ltd v Federal Commissioner of Taxation
(1988) 19 ATR 1834
88 ATC 4886