Australian tax cases 2025 Archive
Tax cases, appeals updates and decision impact statements (DISs) that feature in the CA ANZ Tax News AU.
EMH IV Pty Ltd as trustee for the EMH IV Family Trust v Commissioner of Taxation [2025] FCA 1429 – GIC not remitted
In this case, the taxpayer which was a trust, sought a review of a decision by the ATO not to remit general interest charge (GIC). The taxpayer lodged its 2015 tax return on 7 June 2016, which it claimed was in accordance with the timeframes prescribed by the ATO in the Tax Agent Lodgment Program 2015 (TALP). The ATO refused to remit GIC as return was due by 15 May 2016.
The Court found that when read in context, the terms of the Individuals and Trusts (I&T) Concession Subsection in the TALP did not extend the lodgment end date to 7 June 2016 for any taxpayer in the I&T Section. Instead, all that was provided by that subsection was for the remission of an administrative penalty that had accrued with regard to those taxpayers who had lodged their tax return out of time. Even if the TALP could be construed as somehow extending the date on which certain entities might lodge their returns, this concession did not apply to the taxpayer.
Geocon Land Holdings No. 5 Pty Ltd v Commissioner of Taxation [2025] FCAFC 172 – “Passed on” retains its ordinary meaning
In this case, the taxpayer acquired a Crown Lease of land in the Australian Capital Territory (ACT) from the ACT Land Development Agency. The taxpayer gave monetary and non‑monetary consideration in connection with the grant of the Crown Lease. The taxpayer calculated GST on the sales of the developed units on the basis of the GST margin scheme provided for in Division 75 of the A New Tax System, Goods and Services Tax Act 1999 (GST Act). The taxpayer incorrectly failed to take the non‑monetary consideration into account when calculating the margin for the sale of certain units. It therefore overpaid GST to the Commissioner.
The key issue at hand was whether the taxpayer has “passed on” the “excess GST” within the meaning of s 142-10 of the GST Act. The Court held that the Tribunal distorted the factual inquiry required by Division 142 and the question of whether excess GST had been “passed on”, by employing a form of presumption that the taxpayer had passed on the overpaid GST because it was profitable overall, which it could only negate by showing something out of the ordinary or unusual. This wrong approach led the Tribunal to treat relevant evidence as not to the point and, as a matter of substance, to give the term “passed on” a meaning different to its ordinary meaning. The matter has been remitted to the Tribunal for redetermination according to law.
Sunna v Commissioner of Taxation [2025] FCA 1499 – ATO not out of time to backdate CGT liability, taxpayer out of time to avoid double assessment
This case considered the construction of s 170(10AA) of the ITAA 1936 and whether it empowered the ATO to amend two notices of assessment more than two years after they were issued to the taxpayer. The taxpayer had entered into a sale contract in June 2019 but did not report a capital gain in his 2019 tax return. In his 2020 tax return, the taxpayer reported a net capital gain referable to a deposit received. Both returns were lodged before the taxpayer disposed of the asset transferring ownership in August 2022. The taxpayer reported another net capital gain for the disposal in his 2023 tax return. The Commissioner amended the 2019, 2020 and 2023 returns by removing the net capital gains from the 2020 and 2023 returns, and including the entire net capital gain in the 2019 tax return which is when s 104-10(3) deemed the capital gain to arise.
The Court held the 2019 amendment was permissible since the amendment would be “for the purpose of giving effect” to s 104-10(3). Regarding the 2020 return, there was no power to make the amendment which the Commissioner did, since the substantive purpose of the 2020 amendment was only to correct the errors inherent in the original 2020 assessment, not “for the purpose of giving effect” to s 104-10(3). The Court acknowledged that the outcome resulted in double taxation. However, it noted that sometimes the time limitations result in erroneous assessments being beyond recall and that appears to be an accepted aspect of the regime for assessment. Sometimes the error will be to the financial benefit of the taxpayer and, on other occasions, it will not.
Commissioner of Taxation v Hicks [2025] FCAFC 171 – No tax benefit received from a selective capital reduction
In this case, the taxpayers received a distribution of capital through the selective buy-back of pre-CGT shares in a company, following the restructure by a private group of entities. The restructure essentially involved the taxpayers transferring units in City Beach Trust (CBT) to the company, Methuselah, in exchange for new shares in Methuselah. The ATO made determinations under s 45B(3) of the ITAA 1936, to treat the capital benefits received by the taxpayers as unfranked dividends.
The Court found the context and purpose of the capital return by Methuselah was to fund the repayment of Division 7A loans, holding that a capital distribution by Methuselah could not in any sense be taken to be in substitution for a dividend that would otherwise have been paid by CBT out of the profits of the CBT. No distribution by CBT would have been assessable as a dividend to the taxpayers. Considering Part IVA, the Court held the fact that a transaction is entered into following the receipt of tax advice or the fact that the advice refers to “no adverse tax consequences” does not of itself support a conclusion that the dominant purpose of a person was to enable the taxpayers to obtain a tax benefit in the form identified and sought to be cancelled by the Commissioner. The bare fact that a taxpayer pays less tax, if one form of transaction rather than another is made, does not demonstrate that Part IVA applies.
Ziegler v Commissioner of Taxation [2025] FCAFC 168 – GIC credited to Income Tax Account an assessable recoupment
The taxpayer and various entities he controlled entered into a number of transactions, including a settlement with the ATO, that ultimately resulted in the taxpayer receiving a dividend with an imputation benefit of approximately $2.9 million in 2009. The taxpayer received a refundable tax offset of $2.9 million in 2009 after taking into account deductions which included a GIC deduction of approximately $13.7 million, calculated by reference to the taxpayer’s Income Tax Account (ITA). After the settlement, the ATO recalculated the taxpayer’s GIC and credited it to the taxpayer’s ITA. The taxpayer took the position that the GIC credited was not an assessable recoupment under s 20 20(3) of the ITAA 1997. The Court held that GIC liabilities and the Commissioner’s credit in the ITA reflected actual transactions. The Commissioner’s credit was “received as recoupment of a loss or outgoing” within the meaning of s 20 20(3) of the ITAA 1997, namely as a recoupment of the GIC which the taxpayer had deducted.
Newmont Canada FN Holdings ULC v Commissioner of Taxation (No 2) [2025] FCA 1356 – mining assets not TARP
The Federal Court has held mining plant and equipment installed by an Australian mining company were fixtures according to general law principles and were therefore not ‘taxable Australian real property’ for the purposes of applying the non-resident CGT rules in Division 855 of the ITAA 1997. Therefore, the non-resident taxpayer was not liable for CGT for its sale of shares in the Australian mining company.
In this case, the taxpayer, a non-resident company, sold shares in Newmont Australia Pty Ltd (Newmont Australia). At the time of the share sale, almost all the income producing assets of Newmont Australia (and its subsidiaries) were situated in Australia or comprised intangible property that could only be turned to profit by being deployed in mining activities undertaken in Australia. Newmont Australia’s assets included plant and equipment, mining information and mining tenements for mining operations at four mines in Australia.
The Court found that since the enactment of Division 855, the term 'real property' as used in s 855 20 has borne its legal meaning but extended to include leases of land at general law. The relevant mining plant and equipment would only be real property if it formed part of the land according to general law principles, or if it formed part of a lease of land at general law.
When it came to considering whether the relevant plant and equipment was a fixture at general law, it was necessary to have regard to the nature of the statutory right being exercised by those entities when it came to mining. The statutory rights being exercised were those conferred by the mining tenements. They were personal in nature. They did not confer any interest in the land. They did not give rise to any right to sever on the basis that the relevant plant and equipment were the tenant's fixtures. They carried with them statutory obligations to comply with conditions in relation to removal of the plant and equipment.
YTL Power Investments Limited v Commissioner of Taxation of the Commonwealth of Australia [2025] FCA 1317 – Rights from leased assets did not constitute “taxable Australian real property”
The Federal Court has held that shares in an Australian resident company, which held electricity transmission licences and a lease of electricity infrastructure, were not taxable Australian real property and thus the disposal of the shares by the non-resident taxpayer was not subject to CGT.
ElectraNet Pty Ltd (ElectraNet), an Australian resident company held an electricity transmission licence and an electricity system control licence, which allowed it to carry on operations in the electricity industry in South Australia. Central to the case was the question whether rights conferred on ElectraNet under a Network Lease in relation to “Leased Assets” (or some of them) constituted “real property situated in Australia (including a lease of land)” within the meaning of s 855-20(a) of the ITAA 1997, and hence “taxable Australian real property” under s 855-20 of the ITAA 1997.
The Federal Court found that by virtue of s 30 of the Disposal Act, a lease of the electricity infrastructure was taken to be a lease of personal property severed from the land. ElectraNet did not obtain any rights to real property or land as a result of the rights conferred under the Network Lease in relation to Relevant Assets situated on land “belonging to” another entity, TLC. This outcome was a function of the particular statutory regime that applied to the privatisation of the South Australian electricity industry (especially s 30 of the Disposal Act) and of the statutory rights conferred on the operator of the transmission infrastructure in respect of third party land.
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Commissioner of Taxation v ACN 154 520 199 Pty Ltd (in liquidation) [2025] FCAFC 146 – Fiscal effect of scheme renders inputs tax credits from precious metals as fools gold under GST anti-avoidance rules
The Full Federal Court has set aside a decision made by the Administrative Appeals Tribunal (AAT) in Commissioner of Taxation v ACN 154 520 199 Pty Ltd (in liquidation) [2025] FCAFC 146 and remitted it back to the Administrative Review Tribunal. In this case, the taxpayer was a ‘refiner of precious metals’. The taxpayer claimed input tax credits (ITCs) for purchasing refining material that did not meet the definition of “precious metal” in s 195-1 of the GST Act. The taxpayer’s suppliers had acquired gold that was “precious metal” which it adulterated (via processes such as melting, cutting or otherwise damaging the gold) so that it ceased to be “precious metal”. The suppliers fraudulently did not remit GST payable on its supplies made to the taxpayer.
In the first instance, the AAT held that it was not reasonable to conclude any entity entered into the arrangement with the sole or dominant purpose of the taxpayer obtaining the ITCs, even if the taxpayer was an informed participant in the arrangement. The Full Federal Court allowed the Commissioner’s appeal holding that the AAT misconstrued and misapplied the s 165-5(c)(ii) ‘principal effect’ inquiry by failing to focus on the fiscal effect of the scheme. Further, the AAT misconstrued and misapplied s 165-5(1)(c) by disregarding that a purpose or object of Div 165 is to deter artificial or contrived schemes.
Commissioner of Taxation v CPG Group Pty Ltd [2025] FCAFC 147 – GST anti-avoidance rules applied
The Full Federal Court has set aside a decision made by the Administrative Appeals Tribunal (AAT) in Commissioner of Taxation v CPG Group Pty Ltd [2025] FCAFC 147 and remitted it back to the Administrative Review Tribunal. In this case, the taxpayer was involved in a round robin transfer of gold. Effectively, the taxpayer sold gold bullion as GST-free “precious metal” under s 195-1 of the GST Act to a related party. The gold was subsequently sold to one or more intermediaries where it was transformed into non “precious metal” and on sold through one or more intermediaries back to the taxpayer. The supplies made to the taxpayer were subject to GST allowing the taxpayer to claim input tax credits (ITCs).
In the first instance, the AAT held that it was not reasonable to conclude any entity entered into either scheme or a part of either scheme identified with the sole or dominant purpose of the obtaining the ITCs. The Full Federal Court allowed the Commissioner’s appeal holding that the AAT misconstrued and misapplied the s 165-5(c)(ii) ‘principal effect’ inquiry by failing to focus on the fiscal effect of the scheme. Further, the AAT misconstrued and misapplied s 165-5(1)(c) and s 165-15(1)(c) by disregarding that a purpose or object of Div 165 is to deter artificial or contrived schemes.
Commissioner of Taxation v Huang [2025] FCA 1314 – Failure to keep records does not discharge onus of proof
In this case, the Commissioner had issued amended assessments and applied penalties to the taxpayer for making false or misleading statements which amounted to recklessness. The Commissioner contended the taxpayer, as trustee of the Rong Family Trust (RFT), lodged incorrect tax returns significantly understating its income. Further, the taxpayer as a beneficiary of the RFT, did not declare the correct amount of income as trust distributions in his tax returns.
At first instance, the Administrative Appeals Tribunal reasoned that the failure to maintain records was not causative of the relevant income tax returns being false or misleading, but caused the taxpayer to be unable to discharge his onus of proof under s 14ZZK(b)(i) of the TAA 1953 regarding the assessments of income tax.
On appeal, the Federal Court held the taxpayer had to demonstrate that the assessment should not have been made or should have been made differently: s 14ZZK(b)(ii); or that the assessment was excessive or otherwise incorrect and what the assessment should have been: s14ZZK(b)(i).
Therefore, the taxpayer had to positively prove the absence of recklessness. However, the taxpayer did not discharge the burden of proving that the assessment was excessive by simply showing that the Commissioner formed a judgment about the amount of taxable income on a wrong basis.
Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145 – Determining the existence of a royalty is a fact-dependent exercise
In this case, the Full Federal Court granted a stay of proceedings (i.e. temporary pause in a legal proceeding) to the Appellants until the conclusion of a mutual agreement procedure (MAP) request.
The Appellants are part of the Oracle group of companies: Oracle Australia, Oracle Ireland and Vantive (the Appellants). Oracle Australia is a subsidiary member of the Vantive multiple entry consolidated group, and Oracle Ireland is an Ireland tax resident company. The underlying tax issue is whether amounts paid by Oracle Australia to Oracle Ireland under intra-group licensing arrangements are royalties as defined by s 6 of the ITAA 1936 and the Article 13 of the Australia-Ireland double tax agreement (DTA).
The Commissioner disallowed objections to penalty assessments issued on the basis that there had been a failure to withhold amounts from royalty payments made by Oracle Australia to Oracle Ireland. The Appellants subsequently submitted a formal MAP request under Article 25 of the DTA to the Irish competent authority.
In the first instance, the Federal Court refused to stay the proceedings pending the finalisation of the MAP. This was made on the grounds of public interest that a domestic decision would provide guidance for other royalty tax related cases.
The Full Federal Court found that the primary judge mistook the facts in concluding that the present proceedings would, if determined by the Full Federal Court, provide material guidance on the correct tax treatment of the arrangements of the other royalty tax related cases. Determining whether or not certain payments are royalties is a fact-dependent exercise involving close analysis of the terms of the contracts between the parties, and the nature of their arrangements.
G Global 120E T2 Pty Ltd v Commissioner of State Revenue; G Global 180Q Pty Ltd v Commissioner of State Revenue; G Global 180Q Pty Ltd v Commissioner of State Revenue; Stott v The Commonwealth of Australia [2025] HCA 39 – double tax agreements do not protect foreigners from discrimination in relation to state taxes
The High Court has unanimously held that s 5(3) of the International Tax Agreements Act 1953 (ITAA 1953) was effective in removing retroactively an inconsistency between a Commonwealth law and a State law so as to render the past exaction of a State land tax valid. Section 5(3) effectively gave precedence to Commonwealth or State or Territory law that imposes a tax other than Australian tax over Australia’s tax treaties.
In this case, two taxpayers owned land in Queensland and are owned and controlled by a German incorporated company. The third taxpayer is a citizen of New Zealand and owned land in Victoria. Prior to 8 April 2024, the imposition of land tax on the taxpayers was contrary to the non-discrimination provisions of the Australia and Germany double tax agreement (German Agreement), and the Australia and New Zealand double tax agreement (NZ Agreement) respectively under s 5(1) of the ITAA 1953.
On 8 April 2024, the ITAA 1953 was amended (s 5(3) inserted) to exclude State taxes, including land taxes that were payable from 1 January 2018 from the scope of s 5(1). The Land Tax Act 2010 (Qld) and Land Tax Act 2005 (Vic) were also amended that if the provisions that imposed the obligation to pay additional land tax remained inoperative by reason of s 109 of the Constitution, then new additional land tax was imposed in the same amounts and on the same terms as had been purported to be imposed before the amendments.
Safarimaznabi v Commissioner of Taxation [2025] FCA 1266 – tax whistleblower can seek to prosecute the Commissioner for breach of duty of care
This interlocutory application hearing concerns an individual who “blew the whistle” on alleged tax irregularities he had identified in the course of his employment. Consequently, the individual claimed he was victimised by the employer and was subjected to detriment including dismissal, harassment, psychological harm, and other retaliatory actions.
The individual claimed the Commissioner owed him a common law duty of care to take reasonable steps to prevent foreseeable harm from retaliation, and a statutory duty to administer the whistleblower protections under Part IVD of the Tax Administration Act 1953 (TAA) in a way consistent with the protective purpose of the regime.
The Federal Court dismissed the Commissioner’s application for summary judgment, holding that while the cause of action the individual sought to prosecute is novel that does not mean it is unarguable. At the final hearing, it is possible for the individual to establish facts that are capable of sustaining his allegation that the Commissioner owed him a statutory duty and/or a duty of care at common law to take reasonable steps to protect him from foreseeable harm from retaliation by his employer, about which he had made an eligible disclosure under the TAA, and that the Commissioner breached that duty, causing him loss and damage.
Commissioner of Taxation v PepsiCo Inc and Anor [2025] HCA 30 - no payment for embedded royalty; DPT not applicable
By a 4:3 majority, the High Court has dismissed the Commissioner’s appeals, holding that there was no embedded royalty to which Australian royalty withholding tax (RWT) could apply and that the diverted profits tax provisions (DPT) in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) did not apply.
In this case, the taxpayers were two US companies in the PepsiCo Group which had agreements with SAPL (an Australian company) to bottle, sell and distribute beverages within Australia. Under the exclusive bottling agreements, PBS (an Australian incorporated subsidiary of one taxpayer) sold flavour concentrates to SAPL that SAPL required to manufacture the beverages. The agreements also contained either an express or implied licence for SAPL to use necessary intellectual property of the taxpayers, however, SAPL did not need to pay a royalty for use of the IP. SAPL did not make any payments to the taxpayers.
The majority found that the payments made by SAPL to PBS were for concentrate only and did not include any component which was a royalty for the use of intellectual property. In any event, the High Court unanimously held that any payment made by SAPL to PBS was not "paid or credited" to or "derived by" the US companies and thus royalty withholding tax was not payable under s 128B(2B) of the ITAA 1936. The Court also found that DPT did not apply as the taxpayers did not obtain a tax benefit in connection with a scheme within the meaning of s 177J of the ITAA1936 - the Commissioner’s counterfactuals were not ‘reasonable’ and there was no other postulate that was a reasonable alternative.
South Seas Holdings Pty Ltd (Trustee) v Commissioner of Taxation [2025] FCA 848 – deductions not substantiated, part of tax avoidance scheme
The Federal Court has dismissed the taxpayer’s appeal, upholding the Commissioner’s amended assessments and penalties across 14 income years. The Court found that the deductions claimed for management fees, interest on loans, and carry-forward losses were not substantiated and were part of a broader tax avoidance scheme involving related entities controlled by Mr Vanda Gould.
Central to the decision was the credibility of Mr Gould, whose evidence was found to be unreliable and lacking credibility following extensive cross-examination. The Court also accepted the Commissioner’s assertion of “fraud or evasion,” allowing the assessments to be amended outside the usual time limits, and upheld the imposition of shortfall penalties
Commissioner of Taxation v SEPL Pty Ltd as trustee of the SFT Trust [2025] FCA 581 - Trustee directors held to be employees for FBT purposes
The Federal Court has held that the sole directors (three brothers) of a corporate trustee were employees of the trustee and that they received non-cash benefits in respect of their employment for FBT purposes.
The brothers and their extended family were all beneficiaries of the trust. However, only the brothers had an active ‘hands on role’ in the trustee’s business, yet did not receive a salary. Instead, they shared in the profit of the business through an informal arrangement and had exclusive use of the trustee’s luxury and high-performance motor vehicles.
In reaching its decision, the Court held that the Fringe Benefits Tax Assessment Act 1986 provides a comprehensive and self-contained definition of employee and expressly incorporates a statutory deeming provision in s 137 to broaden the concept of employment for FBT purposes by applying a hypothetical test: if the benefit had instead been paid in the form of a cash payment, would it constitute a salary or wages for the purposes of the Taxation Administration Act 1953? After confirming the brothers were employees, the Court held that based on the facts, the exclusive use of the motor vehicles was conferred in respect of their employment by the trustee. After confirming the brothers were employees, the Court held that based on the facts, the exclusive use of the motor vehicles was conferred in respect of their employment by the trustee.
The taxpayer has filed an appeal to the Full Federal Court.
Charles Apartments Pty Limited v Commissioner of Taxation [2025] FCA 461 – interest not deductible as nexus requirement not satisfied
The Federal Court has dismissed the taxpayer’s appeal, holding, the AAT applied s 8-1 correctly when determining the deductibility of interest and made the appropriate findings. It also allowed the Commissioner’s cross appeal which sought to set aside the AAT’s finding that all the interest was deductible under s 8-1 of the ITAA 1997. The case involved capitalised interest that was incurred under refinancing arrangements by a special purpose vehicle in a large property development group.
The taxpayer (the special purpose vehicle) argued that because its assessable income had increased due to the AAT’s decision to accept the portion of sale proceeds of $946,000 attributed to the taxpayer by the Commissioner, the AAT should then have considered whether it should be allowed a corresponding increase in deduction for interest under an intragroup loan agreement under s 8-1. This was described as a "consequential step" argument. The Court rejected this argument as there was no evidence that the taxpayer had paid the interest.
The Commissioner had cross-appealed seeking to set aside the AAT’s decision to allow a deduction in respect of interest of $1.87 million arising from a refinancing by the taxpayer through a consolidation of loans within the taxpayer’s corporate group. The taxpayer only paid the capitalised interest when it sold certain properties and was only liable for such interest to the extent that there were sufficient sale proceeds from the sale of the properties. The Court agreed with the Commissioner, finding that the AAT failed to properly apply the nexus requirement of s 8-1 and applied what was described as a “but for” test.
Aitken v Commissioner of Taxation [2025] FCA 372 - Commissioner’s valuation to ascertain assessable income under Division 394 accepted
The Federal Court has dismissed the taxpayer’s appeal, finding the Commissioner correctly included $4,718,000 as assessable income. This arose from the taxpayer’s exercise of put options over timberlots under a forestry managed investment scheme (FMIS) and the novation of the timber component of his forestry interest to the manager of the FMIS.
In this case, the taxpayer made an investment in a FMIS which was subject to the specific tax regime under Division 394 of the ITAA 1997. The central issue was the determination of the market value, or reduction in the market value, of the taxpayer’s forestry interest in the FMIS in order to ascertain his assessable income
While the taxpayer relied upon a valuation expert, the Court found that not all the material facts going to market value were before the Court, largely due to evidentiary silence about the circumstances surrounding a novation deed dated 1 July 2015, and the absence of any evidence of the value of the carbon sequestration and salinity rights and credits component of the taxpayer’s forestry interest retained by him.
In reaching its decision, the Court found that the taxpayer’s assessable income was affected by two separate CGT events: the exercise of a put option and the taxpayer’s novation of the rights (and obligations) over the timber component of his forestry interest.
The taxpayer has filed an appeal to the Full Federal Court.
Merchant v FCT [2025] FCAFC 56
The Full Federal Court has upheld a decision that the general anti-avoidance provisions of Pt IVA applied to a scheme where a family trust made a capital loss on the sale of shares
The majority of the Full Federal Court dismissed appeals by Mr M and GSM (the taxpayers) in relation to the application of Pt IVA. The majority (McElwaine and Hespe JJ; Logan J dissenting) rejected submissions that Thawley J had misunderstood s 177D, had in substance undertaken a subjective purpose analysis and had failed to correctly evaluate all purposes in reaching the dominant purpose conclusion. The majority also upheld Thawley J ‘s rejection of the taxpayers' assertion that the capital loss was not contrived.
Another issue was whether the TOFA provisions in Div 230 applied in relation to future payment rights, which were valued at $51m. That amount was included in the capital proceeds for the sale of the Plantic shares to Kuraray. All 3 judges held that Div 230 did not apply as the future payment rights arose from the sale of shares in a company that operated a business, within the terms of s 230-460(13).
XRXR and FCT [2025] ARTA 357 – Settlement payment not an excluded payment as not principally compensation for harassment
Following a conciliation conference with the Fair Work Commissioner, the taxpayer and his employer agreed that the taxpayer would resign, and the employer would pay the taxpayer $189,000 for 12 months' pay in lieu of notice plus an additional ex gratia payment of $70,000.
A taxpayer requested a private ruling stating that payments he received were principally compensation for harassment making the payments an “excluded payment” under s 82-10(6)(d). The Commissioner found the payments were not principally compensation for harassment in t it private ruling. The taxpayer challenged the private ruling in the ART.
In this decision, the ART concluded that the payments were not principally compensation for harassment. The private ruling provided no evidence that the payments were principally for harassment, rather they could be principally for other matters including incentivising the taxpayer to resign or “in lieu of notice” as the payments were described in documentation.
Morton v Commissioner of Taxation [2025] FCA 336 – development of land not carrying on a business or a profit-making scheme
The Federal Court has held that Mr Morton did not engage in a business of developing land or a profit-making scheme and therefore, the proceeds from the sale of Dave's Block were not assessable as income, and the Commissioner’s amended tax assessments were deemed excessive.
Mr Morton, a retired farmer, owned a parcel of land known as "Dave's Block" in Tarneit, Melbourne. After the land was rezoned as residential in 2010, Mr. Morton developed (using property developers) and sold it as part of a housing estate. The Commissioner issued amended tax assessments for 2019 and 2021, treating the sales proceeds as assessable income. Mr. Morton objected, claiming the proceeds were capital receipts, not income, and appealed the disallowance of his objections. The Commissioner argued the proceeds were income from a business or a profit-making scheme.
The Court considered several factors to determine whether Mr Morton's activities constituted a business of land development or a profit-making scheme. Key points included that Mr Morton did not initially acquire the land with a profit motive and continued farming until 2015 despite rezoning. He played a minimal role in the development process, did not manage project finances, and sought to minimise risk rather than maximise profit. The Court noted that the scale of development and lack of repetitive activity did not indicate a business operation. Additionally, Mr Morton's engagement with property developers did not transform his activities into a business.
The Commissioner has filed an appeal to the Full Federal Court.
S.N.A Group Pty Ltd v Commissioner of Taxation [2025] FCA 240 – service fees within corporate group deductible
The Federal Court has allowed the taxpayer’s appeal holding services fees within a corporate group were deductible. In this case, the taxpayers were two entities within a corporate group which had been restructured in 2005 primarily to protect the principal assets of the group from operational risks. A feature of the restructure was each taxpayer entering into a licence agreement under which they paid service fees to other entities within the group. The Court held that the taxpayers needed to pay for the assets and expertise which were essential for their gaining or producing assessable income or in carrying on a business for that purpose. These were held by other entities which expected a return. It did not matter that those other entities were under the effective control of the same persons who effectively controlled the taxpayers. The service fee struck was struck on accounting professional advice as to what was reasonable and was not so high as to admit of a conclusion that some purpose other than those specified in s 8-1 of the ITAA1997 was abroad.
The Commissioner has filed an appeal to the Full Federal Court.
AusNet Services Limited v Commissioner of Taxation [2025] FCAFC 21 – scheme for reorganising affairs existed
The Full Federal Court has dismissed the taxpayer’s appeal, holding the Division 615 rollover relief was available for the restructure. In this case, there was a restructure of three stapled groups. The restructure involved the unstapling of the three stapled groups (Distribution tax consolidated group, Transmission tax consolidated group and Finance tax consolidated group) and the three groups being owned through an interposed shelf company. The taxpayer argued that Division 615 of ITAA 1997 (business restructures rollover relief) could not apply to the Distribution scheme and therefore it was entitled an increase in the cost bases of the assets of the former Distribution tax consolidated group.
At first instance in AusNet Services Limited v Commissioner of Taxation [2024] FCA 90, the Federal Court held the Distribution scheme could not be examined in isolation given the Distribution scheme was undertaken as part of broader scheme involving the schemes relating to Transmission and Finance and that prior to the restructure, the entities had been stapled together, operated and owned as a single economic unit. Crucial to the taxpayer’s appeal to the Full Federal Court was a conception of Division 615 as applying only when the interposed company begins the process as a “shelf company”: i.e. it has no value before the shares or units in the original entity are transferred to it, and no shares on issue after the reorganisation other than those issued as part of the scheme.
In reaching its decision, the Court critically examined the application of s 615-20(a) as well as s 615-5. The Court interpreted s 615-20 as applying to only the shares disposed and issued pursuant to the scheme, rather than all of the shares in the interposed company. If s 615-20 applied to all of the shares, then rollover could only apply if the interposed company was a shelf company.
In relation to s 615-5, the Court considered the meaning of “scheme for organising its affairs” in the context of Div 615. Paragraphs (1)(a)-(e) do the work of defining the characteristics that the scheme must have: it must encompass a change of ownership of shares or units of the kind referred to in those paragraphs. Accordingly, the Distribution scheme was a “scheme for organisation its affairs” in the sense Distribution transformed from a widely held corporation into a wholly owned subsidiary of the taxpayer. There was no change in Distribution’s business undertakings, asset base or relationships with other entities. Distribution remained a separate legal entity from Transmission and Finance. All that changed, pursuant to the scheme, was the identities of its shareholders
McPartland v Commissioner of Taxation [2025] FCAFC 23 – taxpayer has burden to prove what the assessment should have been
The Full Federal Court has dismissed the taxpayers’ appeal, holding that the appellants’ personal and business financial affairs were intermixed and dishevelled, with no contemporaneous reconciliation of business and personal expenditure, they had unexplained cash deposits, and so the appellants had failed to prove that their taxable income was nil.
The appellants in this case had not lodged tax returns for the income years ended 30 June 2015, 2016 and 2017. The Commissioner audited these returns as well as two companies controlled by the appellants. The Commissioner issued “default” assessments, using various bank and credit card statements of the appellants, treating the total amount of personal expenditure as the appellants’ taxable income. The appellants objected on the grounds that their personal expenditure was less than calculated by the Commissioner and that expenditure was funded from non-taxable sources of income. The appellants claimed they had no taxable income for the relevant income years. At first instance, the AAT held that the appellants failed to establish what the correct assessment should have been. The Federal Court dismissed the subsequent appeal, finding that the AAT had not made an error and that there was not sufficient evidence to support a finding as to what the assessments should have been.
Baya Casal v Deputy Commissioner of Taxation [2025] FCA 87 – Reduced hours and different working days arising from a restructure considered to be a genuine redundancy
The Federal Court has allowed the taxpayer’s appeal, determining the taxpayer’s position was genuinely redundant for the purposes of s 83-175(1) of the Income Tax Assessment Act 1997 (ITAA 1997). In this case, the taxpayer was an employee at an early learning centre. Due to a restructure, she was offered a new role which required similar skills, had similar responsibilities, but also had reduced working hours and a change to her working days. The new role resulted in a 20% to 40% reduction in remuneration. Alternatively, she was offered a redundancy payment which she took.
The Federal Court held that different hours on changed days means (subject to the question of materiality) that a position is different and that if an employee’s remuneration is materially reduced, that employee is no longer working the same position as the employee was formerly. It also accepted that the taxpayer’s reduction in hours and remuneration was material and so her position was genuinely redundant for the purposes of s 83-175(1) of the ITAA 1997.
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Tabcorp Maxgaming Holdings Limited v Commissioner of Taxation [2025] FCA 115 – A condition is not a contingency for the purposes of the TOFA rules
The Federal Court has dismissed the taxpayer’s appeal in Tabcorp Maxgaming Holdings Limited v Commissioner of Taxation [2025] FCA 115. In this case, the taxpayer claimed that it made a loss of $1,491,309,000 from a financial arrangement, which was deductible under the taxation of financial arrangement rules in s 230-15(2) of Income Tax Assessment Act 1997, when the asserted financial arrangement ceased in the financial year ended 30 June 2013. It was noted that the taxpayer had already been allowed $1,193,952,000 of that amount in deductions under s 8-1 in the financial years ended 30 June 1999 to 30 June 2013.
The taxpayer held a gaming operator’s licence from the State of Victoria which expired at midnight, 15 August 2012. On expiry of the license, the taxpayer claimed it had a “contingent right to a terminal payment” from the State of Victoria which came into existence on expiry of the license. The taxpayer asserted this gave rise to a “financial arrangement” pursuant to s 230-85 which states that rights and obligations include contingent rights and obligations. Both the Commissioner and the taxpayer agreed there was no financial arrangement for the period leading up to the expiry of the licence.
The Court held that the taxpayer did not have a “financial arrangement” within the meaning of s 230-45 at any relevant time. The financial arrangement put forward by the taxpayer was one which only came about after expiry of the licence. The financial arrangement so defined could not contain a “contingency” that the licence expire (in the future) as opposed to involving the existing fact (or satisfied condition precedent) that the licence had already expired. A contingency is an event which may or may not happen. An event which has already happened involves no contingency whatsoever; it is a certainty.
Further, the Court held the “arrangement” between the parties evolved and was substantially different by the time the contended financial arrangement was said to exist; any “right” to compensation or entitlement to a payment had already ceased by 16 August 2012; and as at 16 August 2012, there was no arrangement which included a possibility that a gaming operator’s licence could or would issue.
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Commissioner of Taxation v Bendel [2025] FCAFC 15 – unpaid present entitlement not a loan for s109D(3) purposes
The Full Federal Court has dismissed the Commissioner’s appeal in Commissioner of Taxation v Bendel [2025] FCAFC 15. This case dealt with the interpretation of s 109D(3) of the Income Tax Assessment Act 1936 (ITAA 1936) which contains a definition of “loan” for the purpose of Division 7A. In this case, a trustee resolved to appoint a corporate beneficiary as presently entitled to part of the income of the trust, but corporate beneficiary did not call for payment of the entitlement. The question at hand was whether the unpaid present entitlement constituted a “loan” from the corporate beneficiary to the trustee for the purposes of Division 7A.
The Court found that although a debtor‑creditor relationship was created by the trustee resolution and the entry in the trust accounts, s 109D(3) requires more than the existence of a debtor-creditor relationship. It requires an obligation to repay and not merely an obligation to pay. For the purposes of s 109D(3), there was no loan or creation of an obligation to repay an amount, rather there was an obligation to pay an amount. As the case stands, an unpaid present entitlement from a trust to a company is an obligation to pay an amount and therefore not a “loan” for the purposes of s 109D(3) of the ITAA 1936.
Commissioner of Taxation v Liang [2025] FCAFC 4 – Unexplained deposits assessed as ordinary income
The Full Federal Court has allowed the Commissioner’s appeal in Commissioner of Taxation v Liang [2025] FCAFC 4. In this case, the taxpayers were husband and wife, and the beneficiaries of a trust which conducted property investment activities (Property Trust). The wife made a number of deposits into the bank account of the Property Trust in the 2017 and 2018 income years, which she claimed to be from her parents as loans or equity to the Property Trust. The Commissioner issued amended assessments by including the value of those deposits in the net income of the Property Trust as ordinary income. The Commissioner then assessed the taxpayers on their respective shares of those amounts as beneficiaries presently entitled to the income of the Property Trust.
The Full Federal Court held that the taxpayers had not discharged their burden under s 14ZZK of the Taxation Administration Act 1953 of proving the amended assessments were excessive as the taxpayers had failed to establish the source of the deposits, beyond establishing that the wife was the individual who deposited the cash. This meant the basis for the deposits and the legal nature of the transactions by which the Property Trust become entitled to receive the deposits was not explained. The Full Federal Court held that as a general rule, a taxpayer proves an amount is not assessable as income under ordinary concepts by proving what the amount represents and demonstrating that what the amount represents is not ordinary income. It is difficult to prove a negative by proving a series of other negatives unless those other negatives represent the entire universe of possibilities.
Toowoomba Regional Council v Commissioner of Taxation [2025] FCA 161 – shopping centre car park not a “commercial parking station”
The Federal Court has allowed the taxpayer’s appeal. In this case, the taxpayer sought a private binding ruling whether a local shopping centre car park was a “commercial parking station” for the purposes of s 39A of the Fringe Benefits Tax Assessment Act 1986. In working out the taxable value of a car parking fringe benefit provided by an employer to an employee, the lowest fee charged for all-day parking in a “commercial parking station” within a 1km radius of where an employee parks their car is used. The ATO ruled that the car park was in fact a commercial parking station, which the taxpayer appealed to the Federal Court.
The car park in question had a range of fees depending on the duration of how long a car was parked, with a maximum daily rate. In addition, the car park had a range of discounted and free car parking scenarios available, such as free parking after 6pm and for cinema patrons. The court held that the shopping centre car park was not a “commercial parking station”. This is because the shopping centre car park had a range of fees which demonstrated that the purpose of the car park’s operations was to complement the operation of the shopping centre.
Further, while the shopping centre car park operated in trade or commerce, considered as a car parking facility alone, the range of free parking was inconsistent with it being operated commercially for profit, as opposed to commercially in the context of a shopping centre, not a standalone car parking facility. The Court distinguished its decision from Commissioner of Taxation v Qantas Airways Limited [2014] FCAFC 168 (Qantas) as the shopping centre car park was not operated with a profit-making purpose.
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