Date posted: 11/11/2022

Tax cases, appeals updates and DISs

Tax cases, appeals updates and decision impact statements (DISs) that feature in the CA ANZ Tax News AU.

In brief

  • Highlights and summaries of recent tax cases
  • List of recent Appeals updates that have been reported in CA ANZ Tax News AU
  • View recent DISs released by the Australian Taxation Office (ATO)

Items released the week ended 11 November 2022

2016-0200 - Decleah Investments Pty Ltd and anor as Trustee for the PRS Unit Trust and Commissioner of Taxation - provides the ATO’s response to the Administrative Appeals Tribunal decision in this case, which concerned the calculation of goods and services tax payable under the margin scheme. The Tribunal considered whether a valuation on an ‘as-is basis’ using hindsight information is an approved valuation under the margin scheme provisions in Division 75 of the A New Tax System (Goods and Services Tax) Act 1999.

Tax cases

Bosanac v Commissioner of Taxation & Anor [2022] HCA 34 – wife not holding 50% of her property on trust for husband

The High Court has unanimously allowed an appeal from the Full Federal Court, holding the presumption of resulting trust will not arise where there is evidence from which it may be inferred that the parties' objective intention is inconsistent with the person providing the purchase money obtaining an interest in the property.

A presumption of resulting trust can arise:

  • when a person purchases property in the name of another or in their joint names, but the other person did not contribute any purchase money
  • when the purchase money is contributed by two people jointly, but the property is registered in the name of only one person.

The Commissioner was a creditor of Mr Bosanac and sought a declaration from the Court that Ms Bosanac held half of her interest in her residential property on trust for Mr Bosanac, relying upon the presumption of resulting trust. The Commissioner argued that the presumption of advancement of a wife by her husband, which operates to preclude a resulting trust from arising, is no longer part of the law of Australia in relation to the matrimonial home.

The "presumption" of advancement allows an inference to be drawn from the fact of certain relationships, such as husband and wife, that the presumption of resulting trust will not arise.

The proper inference to be drawn from the objective facts was that the parties objectively intended Ms Bosanac to be the sole beneficial owner of the property, and that Mr Bosanac was merely facilitating Ms Bosanac's acquisition of the property.

Read Bosanac v Commissioner of Taxation & Anor [2022] HCA 34 

BBlood Enterprises Pty Ltd v FCT – s100A reimbursement agreement

In BBlood Enterprises Pty Ltd v Commissioner of Taxation [2022] FCA 1112, the Federal Court concluded:

(1) The assessment issued to the trustee, which taxed the trustee on the basis of s100A of the Income Tax Assessment Act 1936 (ITAA 1936), was an original assessment. It was not excessive on the contended basis that it was an amended assessment issued outside of the limited amendment period.

(2) Section 100A applied to deem BBlood Enterprises Pty Ltd not to be presently entitled to the trust income. The agreement comprising of several steps, including a share buyback, was not an agreement entered into the course of ordinary family or commercial dealing. The Court found the agreement to be unusual and its complexity was not shown to be necessary to achieve a specific outcome sought to be achieved by a dealing aptly described as "an ordinary family or commercial dealing". 

(3) The trustee was taxable to the extent to which the Commissioner contended.

(4) If s100A of the ITAA 1936 did not apply, s207–150 of the Income Tax Assessment Act 1997 did apply, because the deemed dividend was part of a "dividend stripping operation" as defined by s 207–155.

Read BBlood Enterprises Pty Ltd v Commissioner of Taxation

Minerva Financial Group Pty Ltd v Commissioner of Taxation [2022] FCA 1092

The Federal Court has concluded that, in respect of three Part IVA schemes that were alleged by the Commissioner:

  • the applicant did not enter into or carry out the first scheme for the dominant purpose of enabling it to obtain a tax benefit in connection with that scheme within the meaning of s 177D of the Income Tax Assessment Act 1936 (“ITAA 1936”)
  • the applicant entered into or carried out the second and third schemes for the dominant purpose of enabling it to obtain a tax benefit in connection with those schemes within the meaning of s 177D of the ITAA 1936.

The three schemes in question were as follows:

(1) The first scheme comprised the establishment of corporate and trust “silos”, and the nomination of Minerva Holding Trust (MHT) as the residual income unitholder of the securitisation trusts established from 2009, and directing income from the securitisation trusts through MHT. The Court agreed with the applicant that there was a commercial explanation for the scheme - the applicant believed it was the optimal way to go to market under an IPO.

(2) The second scheme comprised the transfer of ownership of Minerva Financial Group Trust (MFGT) from the applicant to the ultimate parent company, Jupiter Holdings BV, in December 2007, and the failure of the applicant, as trustee of MHT, to distribute more than only nominal amounts of MHT’s distributable income to the corporate silo, instead distributing the majority of income to the trust silo. The Court found only the second part of the scheme as indicative of the dominant purpose of obtaining a tax benefit as it could not be explained commercially why the applicant chose to distribute only nominal amounts to the corporate silo.

(3) The third scheme was similar to the second scheme, except that it did not involve the transfer of ownership of MFGT from the applicant to Jupiter. Therefore, the same reasoning as the second scheme applied.

Read Minerva Financial Group Pty Ltd v Commissioner of Taxation

Appears in Tax News AU: Edition 35

Landcom v FCT – State supply of land: each lot was a single supply under the contract

In Landcom v Commissioner of Taxation [2022] FCA 510, the Federal Court held that:

  • The Federal Court had jurisdiction to entertain an appeal by Landcom, a State-owned corporation despite the dispute between Landcom and the Commissioner as to the correct GST amount calculated for the sale of land (consisted of bundled Lots) under the margin scheme (Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)) was a purely notional amount (s114 of the Constitution prohibits the Commonwealth imposing “any tax on property of any kind belonging to a State).
  • The questions in the private ruling application should have been answered by the Commissioner as follows:
    • Question 3 – For the purposes of working out whether the circumstances specified in the second column of item 4 of the table in subsection 75–10(3) of the GST Act apply, will the sale of the freehold interests in the Lots comprising Property B2 pursuant to Contract B2 be a single supply? No.
    • Question 4 – For the purposes of working out whether the circumstances specified in the second column of item 4 of the table in subsection 75–10(3) of the GST Act apply, will the sale of the freehold interest in each Lot comprising Property B2 pursuant to Contract B2 be a single supply? Yes.

Read Landcom v FCT

Appears in Tax News AU: Edition 16

Court finds no reimbursement agreement under s100A

In Guardian AIT Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619, the Federal Court held that:

  • section 100A of the Income Tax Assessment Act 1936 (ITAA 1936) did not apply to deem the clean skin corporate beneficiary of Guardian AIT Pty Ltd ATF Australian Investment Trust (AIT) not to be presently entitled to the relevant trust income and therefore the trustee was not liable to income tax under section 99A(4A) of the ITAA 1936
  • Part IVA of the ITAA 1936 did not apply to the individual, Mr Springer, who controlled AIT and the clean skin corporate beneficiary.

There were two separate appeals heard together by the Federal Court with the case concerning the application of section 100A to AIT being the lead case. The arrangements that triggered the Commissioner’s amended assessments was the fact that the trustee of AIT made an unpaid present entitlement (UPE) to its newly established corporate beneficiary and the UPE amount was subsequently offset by AIT paying the tax owed by the corporate beneficiary on the UPE and a subsequent dividend declared by the corporate beneficiary to AIT (this happened over two income years).

In short, Logan J found that section 100A did not apply because there was no “reimbursement agreement”. His Honour found that the “understandings” that the Commissioner posited as the reimbursement agreements did not exist at all based on the contemporaneous evidence provided. Logan J was of the view that to accept a broad meaning of “agreement” in s100A(13), it must be possible to conclude that something answering the description of “reimbursement agreement” in s 100A(7) pre-existed the present entitlement. In addition, Logan J found that the “agreement” entered into was in the course of ordinary family or commercial dealing as no element of the understanding as made in the relevant income year in any way entailed the future payment of a dividend by the corporate beneficiary to AIT.

Read Guardian AIT Pty LTD ATF Australian Investment Trust v Commissioner of Taxation

Appears in Tax News AU: Edition 1

Appeals updates

Commissioner of Taxation v Carter [2022] HCA 10 – later beneficiaries’ disclaimers ineffective for tax purposes 

The High Court has allowed the Commissioner’s appeal from the decision of the Full Federal Court in Carter v Commissioner of Taxation [2020] FCAFC 150. At issue was whether a beneficiary’s present entitlement under section 97(1) of the Income Tax Assessment Act 1936 – the present legal right to demand and receive payment of a share of the income of a trust estate – was to be determined immediately prior to the end of a year of income by reference to the legal relationships then in existence, or could events after the end of the year of income, which may affect or alter those legal relationships (e.g. a beneficiary’s disclaimer of entitlement), be considered.

The High Court held that section 97(1) is directed to the position existing immediately before the end of the income year for the purpose of identifying the beneficiaries who are to be assessed with the income of the trust. Therefore, the respondents’ subsequent beneficiary disclaimers to their present entitlements in a later year were not effective to retrospectively expunge the rights of the Commissioner against the respondents. The High Court has published a summary

Read Commissioner of Taxation v Carter 

Appears in Tax News AU: Edition 12

Peter Greensill Family Co Pty Ltd (Trustee) v Commissioner of Taxation

The High Court has refused the applicants, Peter Greensill Family Co Pty Ltd as Trustee for the Peter Greensill Family Trust, Martin and N & M Martin Holdings Pty Ltd ATF Martin Family Trust, special leave to appeal the Full Federal Court’s decision in Peter Greensill Family Co Pty Ltd (Trustee) v Commissioner of Taxation [2021] FCAFC 99. In that decision, the Full Federal Court reaffirmed that a non-resident beneficiary of an Australian resident discretionary trust is taxable in Australia on the capital gain attributable to assets that are not taxable Australian property.

Appears in Tax News AU: Edition 10

Commissioner of Taxation v Burswood Nominees Limited as trustee for the Burswood Property Trust [2021] FCAFC 151

The High Court has refused the taxpayer’s special leave application to appeal the decision in Commissioner of Taxation v Burswood Nominees Limited as trustee for the Burswood Property Trust [2021] FCAFC 151. 

In that decision, the Full Federal Court allowed the ATO’s appeal, holding that the commissions and rebates paid by or to the casino under agreements with junket tour operators, if viewed as separate amounts payable, did not form part of “total monetary prizes” or “total amount wagered” within the meaning of s126-10 of the A New Tax System (Goods and Services Tax) Act 1999 (special rules to calculate GST in relation to gambling supplies). It followed that they were not to be taken into account in calculating the “global GST amount” under s126-10 and they were to be dealt with under the ordinary GST rules.

In relation to the total amount payable at the end of a junket (which is a net amount taking into account winnings, losses, commissions and rebates) by the junket tour operator to the casino or by the casino to the junket tour operator, the Court found it was inconsistent with the scheme of Division 126, and with the terms of the relevant expressions, to treat this amount as constituting or forming part of the “total amount wagered” (if payable by the junket tour operator to the casino) or the “total monetary prizes” (if payable by the casino to the junket tour operator).

Read Commissioner of Taxation v Burswood Nominees Limited

Appears in Tax News AU: Edition 17

Decision impact statements

VID 48 of 2021 VID 49 of 2021 VID 50 of 2021 VID 51 of 2021 VID 52 of 2021 VID 53 of 2021 VID 54 of 2021 VID 56 of 2021 - Airport Handling Services Australia Pty Ltd v Commissioner of Taxation - provides the ATO’s response to the Federal Court’s decision in this case, which concerned the applicants’ eligibility for JobKeeper payments. The Court considered whether amendments to the ‘sovereign entity’ exclusion in subsection 7(2) of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 operated retrospectively to deprive the applicants of ‘rights’ to JobKeeper payments so as to engage subsection 12(2) of the Legislation Act 2003.

Appears in Tax News AU: Edition 34

DIS NSD 1278 of 2020 - Aurizon Holdings Limited v Commissioner of Taxation - This Decision impact statement provides the ATO’s response to the Federal Court’s decision in this case. The Court considered the question of whether an amount paid by a shareholder to a company which did not coincide with the company issuing shares to the shareholder can be properly characterised as an amount of ‘share capital’ of the company within the meaning of the Income Tax Assessment Act 1997. The Court also considered whether declaratory relief should be provided notwithstanding the applicant could have availed themselves of the private binding ruling system.

Appears in Tax News AU: Edition 33

S62/2021Commissioner of Taxation v Carter – outlines the ATO’s response to the High Court’s decision dealing with the issue of whether the default beneficiaries who were entitled to gains from the sale of properties held in a trust under the deed remained liable to tax despite validly disclaiming their right to those gains after year end.

P5/2021; WAD 584 of 2019; VID 1191 of 2018
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd
Outlines the ATO’s response to the High Court’s decision concerning the ordinary meaning of the term ‘employee’. While the Commissioner was not a party to proceedings, the decision relevantly impacts tax and superannuation legislation administered by the Commissioner that uses the ordinary meaning of ‘employee’ in its provisions.

Appears in Tax News AU: Edition 11

NSD 561 of 2021 NSD 562 of 2021 - Commissioner of Taxation v Virgin Australia Regional Airlines Pty Ltd - This Decision impact statement outlines the ATO's response to the Full Federal Court's decision concerning the interpretation of ‘primary place of employment’ in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 when read with the extended meaning of ‘business premises’ in subsection 136(2) of that Act. 

Appears in Tax News AU: Edition 7

2021/0940 -M3K Services Pty Ltd and Commissioner of Taxation - Outlines the Commissioner’s view on the Administrative Appeals Tribunal’s decision concerning the provisions on excess GST in Division 142 of the A New Tax System (Goods and Services Tax) Act 1999. The Tribunal found that the taxpayer passed on the excess GST to its customers and that it was not refundable to the taxpayer under section 142-15.

Appeared in Tax News AU: Edition 1

S25/2021 B49/2020 QUD 724 QUD 108 of 2018 - Addy v Commissioner of Taxation - This case decided that a British citizen (the taxpayer) who held a working holiday visa but who was, in unusual circumstances, held to be a resident of Australia was entitled to be taxed at the more favourable rates applicable to her level of income that apply to Australian nationals who are resident of Australia, not the rates normally applicable to individuals who hold working holiday visas.

Appeared in Tax News AU: Edition 1

2020/6929MJ and IT Holdings Pty Ltd and Commissioner of Taxation - outlines the ATO's response to the AAT’s decision concerning whether recording an increase in a company loan liability in favour of the Director constituted a constructive payment under section 11-5 of Schedule 1 to the Taxation Administration Act 1953 and whether the making of that record constituted a scheme under section 5(1)(g) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020. The Tribunal found that there was a constructive payment but that the making of that payment constituted a scheme. The ATO questions the Tribunal’s reasoning on the constructive payment issue notwithstanding that the ultimate decision in the case was favourable to the Commissioner. The decision has not been appealed.

Appeared in Tax News AU: Edition 1

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