Decision impact statement

Ultra Thoroughbred Racing Pty Ltd v Commissioner of Taxation & Anor

Venue: Federal Court of Australia
Venue Reference No: VID 1125 of 2013
Judge Name: Pagone J
Judgment date: 3 December 2013
Appeals on foot: No
Decision Outcome: Unfavourable to the Commissioner

Impacted Advice

Relevant Rulings/Determinations:

• None

Subject References:
Recovery of Tax
s 260-5 Notice
beneficial ownership of funds

Précis

Outlines the ATO's response to this case which concerns whether certain race winnings were required to be paid to the Commissioner pursuant to a s260-5 notice where the taxpayer was registered as owner but did not own the racehorse.

Brief summary of facts

A taxpayer had a tax debt in excess of $11 million. A race horse registered (as to a 50% share) in the taxpayer's name had been awarded prize money. The Commissioner issued a s260-5 notice (commonly referred to as a garnishee notice) to Racing Victoria Ltd, requiring Racing Victoria to pay to the Commissioner the prize winnings otherwise payable to the taxpayer on the basis that the winnings were a debt due to the taxpayer and not the Applicant.

The Applicant, however, claimed that the race horse and the relevant prize money belonged to it, and not to the taxpayer. A contract between the taxpayer and the Applicant provided that all revenue from the race horse belonged to the Applicant.

The Applicant sought declarations (a) that it was the legal and beneficial owner of the prize money, and (b) that Racing Victoria was not required to pay any funds to the Commissioner pursuant to the garnishee notice.

Issues decided by the court

The Court determined that the contract between the taxpayer and the Applicant created a direct entitlement in the Applicant to the prize winnings. The rules of Racing Victoria did not operate to alter that entitlement.

The purpose of s 260-5 (of Schedule 1 of the Taxation Administration Act 1953) is to permit the Commissioner to require payment of money which belongs to the taxpayer and is held by a third party to be paid to the Commissioner.

The Court was satisfied that the Applicant had an equitable interest in the prize money and that because the taxpayer was not beneficially entitled to the money that the winnings did not belong to the taxpayer. As such the Commissioner was not able to recover the money by using the garnishee notice.

ATO view of Decision

The Commissioner considers that this decision turns on its own particular facts.

The decision does not have broader implications for the Commissioner's use of garnishee notices.

Administrative Treatment

Implications for ATO precedential documents (Public Rulings & Determinations etc)

Nil

Implications on Law Administration Practice Statements

Nil. PS LA 2011/18 sets out guidelines for the use of the Commissioner's power to issue a garnishee notice. This decision does not affect those guidelines.

Court citation:
[2013] FCA 1300
2013 ATC 20-428
(2013) 96 ATR 117

Legislative References:
Taxation Administration Act 1953
Schedule 1 s 260-5

Case References:
Palette Shoes Pty Ltd (in liq) v Krohn
(1937) 58 CLR 1

Zuks v Jackson McDonald
(1996) 132 FLR 317
33 ATR 40
96 ATC 4588

Other References:
PS LA 2011/18