Recent cases paper 2016 Financial Services Tax Convention

© Dunne, Taylor, Batten and Krapivensky 20
Disclaimer: The material and opinion
The Tax Institute did not review the c
material and opinions in the paper sh
rely on their own enquiries in making
ME_127270031_1 (W2007)
201
SERV
CO
Written by:
Joanne Dunne
Partner
MinterEllison
Hil
La
Min
Nick Batten
Lawyer
MinterEllison
Na
Kr
La
Min
Su
16
s in this paper are those of the authors and not th
contents of this paper and does not have any view
hould not be used or treated as professional advic
any decisions concerning their own interests.
6 FINANCIAL
ICES TAXATIO
ONFERENCE
Recent Cases
lary Taylor
wyer
nterEllison
Pre
Jo
Pa
Min
athan
rapivensky
wyer
nterEllison
National Division
17-19 February 2016
urfers Paradise Marriott Resort and Spa
hose of The Tax Institute.
w as to its accuracy. The
ce and readers should
L
ON
esented by:
anne Dunne
rtner
nterEllison

Dunne, Taylor, Batten and Krapivensky Recent cases
Page 2 of 47
ME_127270031_1 (W2007)
This paper provides a summary of tax judgments from the Federal Court, Full Federal Court and the High
Court from January 2015 to the end of December 2015. The table is current to January 2016.
Cases of very particular relevance to the Financial Services and superannuation industry are in bold font,
but many other cases are of general relevance. For example, the Full Federal Court's decision in the
Desalination Technology Pty Ltd case considers when expenditure is 'incurred', the High Court decision in
the AusNet Transmission Group Pty Ltd considers whether a contingent liability referred to in a contract
for acquisition of a business will be capital in nature and non-deductible, and the litigation culminating in
the Donoghue decision before the Full Federal Court considers the nature of rights to claim legal
professional privilege and how to protect privileged material, as well as the law on when assessments will
be invalid for conscious maladministration.
For conference attendees accessing this paper electronically, embedded links to each of the cases are
also provided in the case name, and, where applicable, Australian Taxation Office (ATO) Decision Impact
Statements are also provided in embedded links.
Cases that have been appealed as at January 2016 are identified.
The following are excluded from the table:
• Cases which are of a procedural nature – for example interlocutory applications for discovery, or
relating to service or the filing of evidence or applications for leave to appeal;
• Collections or debt related cases that are not relevant or simple in nature – for example cases
where the taxpayer or another person applies to set aside a statutory demand or to set aside an
order to wind up a company;
• State tax cases;
• Administrative Appeals Tribunal cases; and
• Decisions on High Court special leave applications.
The presentation and PowerPoint slides will focus on a small number of key income tax cases. The
presentation will also provide a statistical analysis of win/loss ratio for the taxpayer and Commissioner,
and will review the statistics of each judge in the Federal and Full Federal Courts. Cases of interest from
other jurisdictions will also be raised in the presentation.

Page 3 of 47
ME_127270031_1 (W2007)
Date Case Name Citation Judge Outcome:
Taxpayer or
Commissioner
Summary If known as at the
date of this paper: (i)
whether appealed (ii)
the appeal outcome
and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
27/01/15 Kocharyan v
Commissioner for Taxation
[2015]
FCA 13
Jessup Commissioner This was an appeal by the taxpayer against a decision of the Administrative Appeal Tribunal. The
taxpayer appealed on the basis that:
 The Administrative Appeals Tribunal erred in holding that the taxpayer's 2007 tax return was
valid on the basis that he had not authorised a return filed on his behalf by his tax agent and
erred in holding that the amended assessments had been served upon him because they were
sent to a PO Box and not his preferred address.
 The Administrative Appeals Tribunal erred in holding that the amended assessments had been
issued within the statutory time bar, as a two year time bar applied. The taxpayer's argument
was that it was not reasonable to conclude that a scheme had been carried out for the sole or
dominant purpose of the taxpayer obtaining a scheme benefit, so a four year time bar period did
not apply.
Judgment: The appeal was dismissed. The taxpayer's grounds were either not questions of law, or
were argued on a flawed basis.
Taxpayer has
unsuccessfully
appealed to the Full
Federal Court – see
decision summary
below.
04/02/15 Commissioner of Taxation
v Arnold (No 2)
[2015]
FCA 34
Edmonds Commissioner The Commissioner sought declaratory relief and orders imposing promoter penalties against Mr
Arnold and two associated companies. The scheme at issue involved pharmaceuticals being
purchased by participants from an Australian entity and gifted to charities operating in Africa. Liability
for payment of 92.5% of the purchase price was deferred for 50 years at very low interest. The
purchase price of the pharmaceuticals was considerably higher than their market value at the time.
Participants in the scheme claimed tax deductions for donations to the charities. A similar scheme
had been previously entered into and promoted by Mr Arnold in Canada – with the Canadian
authorities investigating and taking action.
Judgment: Judgment was issued for the Commissioner with $1m penalty being applied to Mr Arnold,
and $500,000 between the two corporates. It was concluded that each of Mr Arnold and the two
corporates was a 'promoter' and the scheme was a 'tax exploitation scheme' as defined in section
290-50 of Schedule 1 to the Taxation Administration Act 1953 (Cth). In particular, the Court held it
was reasonable to conclude that all participants entered into or carried out the scheme in question
for the dominant purpose of getting a 'scheme benefit' from the scheme and it was not reasonably
arguable that the scheme benefit was available at law.
FEDERAL COURT 2015 TAX CASES

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ME_127270031_1 (W2007)
Taxpayer or
Commissioner
the appeal outcome
and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
06/02/15 LHRC v Deputy
Commissioner of Taxation
(No 3).
[2015]
FCA 52
Perry Commissioner The taxpayers sought judicial review of a decision by the Commissioner to serve a notice on the
taxpayers under section 264 of the Income Tax Assessment Act 1936 (Cth) requiring them to attend
an interview in relation to their taxation affairs and provide evidence on oath as part of a Project
Wickenby investigation.
The taxpayers' concern was that Crime Commission examinations had previously taken place in the
context of the abrogation of the privilege against self-incrimination, balanced with prohibitions on
particular material being used in criminal prosecutions and by the ATO. The taxpayers' view was that
those prohibitions would be infringed if ATO officials present at the Crime Commission examination
were entitled to use their knowledge of material presented there in a section 264 interview, and
those officials should be barred from the section 264 examination. There were also allegations of
improper purpose.
Judgment: After a review of the relevant statutory provisions and the powers of both the Crime
Commission and the ATO, the Court dismissed the taxpayers' applications. Particular holdings of
relevance to section 264 included the following:
 Section 264 notices can be issued after assessments had been issued and during an objection
process.
 Section 264 notices do not need to be issued within 60 days of the lodgment of an objection.
 The privilege of self-incrimination is abrogated under section 264.
The taxpayer
unsuccessfully
decision summary
below.
09/02/15 Financial Synergy
Holdings Pty Ltd v
Commissioner of
Taxation
[2015]
FCA 53
Pagone Commissioner As part of a group restructure, on 29 June 2007 a number of units in the Orford Family Trust
(established prior to 20 September 1985) were transferred to Financial Synergy Holdings Pty
Ltd in exchange for Financial Synergy Holdings Pty Ltd issuing shares in itself.
The taxpayer elected a rollover under Division 122 of the Income Tax Assessment Act 1997
(Cth), which disregarded the disposal of the units and the units retained pre-CGT status (this
was not in dispute). Subsequently, a consolidated group was formed on 1 July 2007 with
Financial Synergy Holdings Pty Ltd as the head entity of the consolidated tax group and a
number of subsidiary entities.
In performing its tax consolidation calculations, the taxpayer was required to determine the
allocable cost amount of the units it had rolled over in setting the tax base of underlying
Taxpayer has
Federal Court.

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ME_127270031_1 (W2007)
Taxpayer or
Commissioner
the appeal outcome
and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
assets. The taxpayer adopted a market value at the date of actual transfer in 2007 of $30m.
At issue was the meaning of the words 'as at the time of acquisition' in section 110-25(3)(b)
and whether the cost base of the units was to be determined in 2007 (ie approximately $30m)
or pre-20 September 1985 (ie approximately $1.5m) being the date they were deemed to have
been acquired under the rollover provisions in Division 122 – particularly pursuant to
subsection 122-70(3).
The taxpayer also argued that by virtue of section 705-65(1) in forming a consolidated group
it was deemed to have acquired the assets 'at the joining time', and that Division 122 merely
dealt with pre-CGT assets, not cost base.
Judgment: The Court held that (amongst other references) the use of the word 'acquired' in
subsection 122-70(3), and 'at the time of acquisition' in subsection 110-25(2)(b) reflect an
intention that they operate together.
The Court also held it was a false dichotomy to suggest that Division 122 dealt only with CGT
status, and not the date of acquisition of assets because Parliament could not have intended
that the taxpayer be entitled to preserve the pre-CGT nature of the units but also a reset cost
base under section 705-125.
Parliament intended for the cost base rules in the consolidation provisions to operate to set a
cost base referable to market value at a time prior to 20 September 1985, and the cost base
was $1,560,649.
19/02/15 Rio Tinto Services Ltd v
[2015]
FCA 94
Davies Commissioner This case considered the supply of residential housing to employees. The taxpayer was the
representative member of the Rio Tinto Limited GST group, which included Hamersley Iron Pty Ltd
and Pilbara Iron Company (Services) Pty Ltd. Hamersley and Pilbara Iron provided and maintained
residential accommodation in the Pilbara region for Hamersley's workforce. The accommodation
was leased to workers but it was loss making as it was subsidised. It was common ground that the
supply of accommodation by way of lease was an input taxed supply under section 40-35 of A New
Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act).
The taxpayer sought a declaration that the supply of residential premises in this instance should not
be input taxed under section 40-35(1) and the taxpayer should be able to claim the input tax credits
for acquisitions made in relation to the accommodation. It maintained that the costs it incurred in
Taxpayer
unsuccessfully
decision summary
below.

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ME_127270031_1 (W2007)
Taxpayer or
Commissioner
the appeal outcome
and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
relation to the provision of such accommodation was wholly for a creditable purpose as the supply of
residential accommodation was incidental to the mining operation and was a necessary part of the
operation given the remote location. Alternatively, the taxpayer argued that the costs should be
apportioned to the extent they related to making supplies of residential accommodation, and on a
revenue-based apportionment model about 98% of the relevant costs should be creditable.
The Commissioner did not challenge the essential facts. The Commissioner submitted that under
section 11-15(2)(a) of the GST Act claimed for input tax credits would be denied as the acquisitions
in question had a direct and immediate connection with the supply of residential accommodation by
way of lease, being an input taxed supply. The Commissioner argued that taxpayer incorrectly relied
on the concept of 'total purpose' which is distinct from the concept of creditable purpose.
Judgment: The Court dismissed the taxpayer's application and held that:
 It is possible for something to be acquired in carrying on an enterprise and satisfy section 11-
15(1), but also be acquired in relation to making supplies that are input taxed, satisfying section
11-15(2)(a).
 Section 11-15 does not require an inquiry into 'purpose' in a general sense. For section 11-
15(2)(a) to be satisfied, the nexus/relationship between the relevant acquisition and the input
taxed supply must be 'sufficient' and 'material'.
 The purpose for which an acquisition was made may in some cases bear upon whether
the acquisition has a relevant relationship with the making of supplies that would be input taxed,
but it is the existence of a connection or relationship between the acquisitions and supplies that
would be input taxed that is the statutory criterion directed by section 11-15(2)(a).
 There was no basis for apportionment as the acquisitions had a direct and immediate
connection with the provision of residential accommodation, an input taxed supply.
v Moignard
[2015]
FCA 143
White Commissioner This was a test case funded under the test case funding programme.
The taxpayer exercised an option to purchase a commercial property and shortly afterwards sold it
for a profit. The net proceeds of sale were deposited in two bank accounts, a personal account in the
taxpayer’s name and an account in the name of a corporate trustee of which the taxpayer was the
sole director. The taxpayer maintained that the commercial property was acquired and disposed of

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ME_127270031_1 (W2007)
Taxpayer or
Commissioner
the appeal outcome
and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
by a discretionary investment trust.
The Commissioner issued an amended assessment to the taxpayer including the net profit on the
sale of the property in his assessable income, on the basis that the amount was the taxpayer’s share
of the net income of a trust estate to which he was presently entitled, pursuant to section 97 and
section 101 of the Income Tax Assessment Act 1936 (Cth). The Commissioner also imposed an
administrative penalty.
The Administrative Appeals Tribunal held in the taxpayer's favour on the basis that the
Commissioner had been incorrect to assess the taxpayer on the basis that he was presently entitled
to the income, as there was evidence that it was only properly assessable to the taxpayer as trustee.
The Commissioner appealed to the Federal Court.
Judgment: The Court held that the Tribunal had not addressed the issues arising for its
determination on the review. In particular, the Court held that the Tribunal determined the issue of
'present entitlement' without considering the trust deed and without making the necessary findings of
fact about whether the taxpayer had in the 2007-2008 year made a determination in relation to the
net income of the trust. This meant by itself that the appeal should be allowed.
The Court also held that the Tribunal had erred in law because the taxpayer had not discharged his
burden of proof under section 14ZZK of the Taxation Administration Act 1953 (Cth) establishing that
his assessed tax liability in respect of the 2007-2008 year was excessive because it did not consider
whether there had been a determination in respect of the whole of the income of the trust in that
year.
The matter was remitted to be reheard by the Tribunal.
17/03/15 Donoghue v
[2015]
FCA 235
Logan Taxpayer During the course of an audit of the taxpayer, the ATO was supplied documents by a third party (Mr
Simeon Moore) who had a grievance with the taxpayer. Mr Simeon Moore was a law student and not
at that time a lawyer. A law firm operated by his father (Moore & Associates) had been engaged by
the taxpayer and Simeon Moore was said to consult to that firm. Simeon Moore provided services to
the taxpayer via the law firm. Following a fee dispute, without permission from the taxpayer and
following some alleged threats by Mr Moore, Simeon Moore provided the Commissioner with the
taxpayer's materials.
The ATO officer working on the audit was aware that some at least of the documents might be
Commissioner
successfully
Federal Court - see
decision summary
below.

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ME_127270031_1 (W2007)
Taxpayer or
Commissioner
the appeal outcome
and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
subject to legal professional privilege but did not investigate further. The information supplied by
Simeon Moore, along with other information gathered by the ATO, was utilised when determining the
assessments which were ultimately issued to the taxpayer.
In a prior decision [2013] FCA 84 Justice Reeves issued interlocutory injunctions preventing the
Commissioner from using the material for the purpose of making an assessment or using his powers
under sections 263 or 264 of the Income Tax Assessment Act 1936 (Cth). The taxpayer applied for
orders under section 39B of the Judiciary Act 1903 (Cth), declaring the assessments to be invalid,
and seeking consequential orders preventing the Commissioner from taking any further action to
recover the tax liability created under the assessments..
Judgment: The Court issued orders in favour of the taxpayer quashing all of the assessments issued
by the Commissioner because they were invalid as the assessments were affected by conscious
maladministration. The Court also quashed the penalty assessments, recovery proceedings (in a
judgment issued on the same day see Donoghue v Commissioner of Taxation [2015] FCA 291) and
a departure prohibition order issued to the taxpayer.
The Court held that:
 The evidence established that the documents were subject to legal professional privilege, that
Mr Simeon Moore was acting as an agent of Moore & Associates, that the taxpayer had
engaged that law firm to provide advice, and that the taxpayer had not waived legal professional
privilege.
 Recklessness is sufficient to establish the element of consciousness in conscious
maladministration, and to establish the tort of misfeasance in public office. The ATO officer knew
that the documents could be subject to legal professional privilege, and chose to dismiss those
concerns without making all necessary inquiries or establishing a process to protect the
information prior to making those inquiries. While the ATO officer had not acted in bad faith, his
conduct was reckless and recklessness was sufficient to establish consciousness.
 While the assessments were formally issued by another ATO officer (Deputy Commissioner Mr
Dufus), an assessment is a process, and the ATO officer who received the documents from Mr
Simeon Moore was involved in that process, and his conclusions were adopted by his team
leader and then the Deputy Commissioner.
 Default assessments (such as those issued to the taxpayer) could not be issued on the basis of

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ME_127270031_1 (W2007)
Taxpayer or
Commissioner
the appeal outcome
and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
information that was subject to legal professional privilege, and none of sections 163, 166 and
167 of the Income Tax Assessment Act 1936 (Cth) authorised such assessments.
In a subsequent judgment issued on 24 March 2015, Justice Logan also ordered that the
Commissioner deliver all hard copy documents referred to in its reasons for decision provided by Mr
Simeon Moore and delete permanently all electronic material provided by Mr Simeon Moore. The
Commissioner was also permanently restrained from using such material, and required to withdraw
all garnishee notices issued: see Donoghue v Commissioner of Taxation [2015] FCA 301. Costs
were also awarded, although not on an indemnity basis. In a subsequent judgment issued on 14
April 2015, Justice Edmonds stayed all of the above orders, pending the Commissioner's appeal to
the Full Federal Court – see Commissioner of Taxation v Donoghue [2015] FCA 337.
25/03/15 Bond v Commissioner of
Taxation
[2015]
FCA 245
Mansfield Commissioner This case was an appeal from a decision of the Administrative Appeals Tribunal. The issue was
whether a lump sum payment under a 'loss of licence insurance' scheme made to a former Qantas
pilot who lost his pilot's licence for medical reasons was assessable to the pilot as an eligible
termination payment pursuant to section 82-130 of the Income Tax Assessment Act 1997 (Cth), was
subject to fringe benefits tax, was paid in relation to employment, or was subject to CGT.
The taxpayer argued that the payment was not an eligible termination payment because he received
it for the loss of his pilot's licence, not in consequence of the termination of employment, or
alternatively, it was a capital payment for his personal injury or subject to FBT in Qantas' hands. The
case was heard together with Purvis v Commissioner of Taxation [2015] FCA 246 and Kentish v
Commissioner of Taxation [2015] FCA 247 because the issues were materially the same.
Judgment: The Court upheld the Tribunal decision that the lump sum payments were assessable to
the taxpayers as an eligible termination payment. In reaching its decision, the Court held that the
entitlement to receive the payment arose from the termination of the taxpayers' employment, there
was the required causal relationship and the Tribunal had not made an error of law. The Court also
held that the Tribunal had not made an error of law in holding that the payments were not a capital
payment for or in respect of personal injury to the taxpayers as (amongst other matters) the
payments were not calculated in reference to the taxpayers' condition.
23/04/15 Hii v Commissioner of
Taxation
[2015]
FCA 375
Collier Commissioner This case involved applications for summary judgment by the Commissioner and Mr Hii respectively
and amended originating applications by Mr Hii. The taxpayer alleged that in considering objections
in relation to amended assessments the Commissioner was required to form a view that there had
Decision Impact
Statement has been

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ME_127270031_1 (W2007)
Taxpayer or
Commissioner
the appeal outcome
and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
been an avoidance of tax due to fraud or evasion, and this was a jurisdictional fact upon which the
power to issue the further amended assessments depends. The taxpayer also made allegations that
the assessments were invalid due to conscious maladministration.
Judgment: The Court held:
 The Commissioner made the further amended assessments in compliance with subsection
170(1) of the Income Tax Assessment Act 1936 (Cth).
 It was not a necessary precondition of the exercise of the Commissioner’s power to issue
amended assessments, that the Commissioner positively form a view concerning whether the
taxpayer’s conduct constituted avoidance of tax due to fraud or evasion within the meaning
section 170(1).
 The failure of the Commissioner to form the relevant opinion at the time of the objection decision
did not make that decision or the assessments invalid, or other than 'assessments' within the
meaning of sections 175 and 177.
 The amended assessments were not tentative or provisional, nor on the facts of the case
attended by bad faith so as to constitute conscious maladministration.
issued.
13/05/15 ElecNet (Aust) Pty Ltd
(Trustee) v
Commissioner of
Taxation
[2015]
FCA 456
Davies Taxpayer In this case the taxpayer appealed to the Federal Court from the Commissioner’s objection
decision disallowing taxpayer’s objection against a private ruling.
The taxpayer was the trustee of the Electrical Industry Severance Scheme (EISS). The EISS
provided benefits to 'workers' (as defined) who left or changed their employment in
circumstances set out in the trust deed. The taxpayer applied to the Commissioner for a
private ruling that the EISS was (amongst other matters) a 'unit trust' that was a 'public unit
trust' and a 'resident unit trust' for the purposes of Division 6C of Part III of the Income Tax
Assessment Act 1936 (Cth). The Commissioner ruled that the EISS was not a 'unit trust' –
which meant that it could not be a 'public unit trust', and disallowed the taxpayer's objection.
Judgment: The Court held that:
 The EISS established for workers in the electrical industry was a unit trust for the
purposes of Division 6C of Part III of the Income Tax Assessment Act 1936 (Cth).
 In determining the meaning of 'unit trust' in the context of Division 6C, the definition of
The Commissioner
successfully
decision summary
below.

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ME_127270031_1 (W2007)
Taxpayer or
Commissioner
the appeal outcome
and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
'prescribed trust estate' incorporates by reference the term 'unit trust'. Given this, and the
role of the definition of 'unit' in the structure of Division 6C, Division 6C must be read as a
whole and while 'unit trust' is not defined, its meaning is affected by the definition of
'prescribed trust estate' in relation to which 'unit' has a defined meaning. Units described
as such do not need to be issued.
 The trust fund was held for the benefit of the persons in respect of whom the
contributions were made by the employers and each worker had a discrete proprietary
interest and a beneficial interest in the contributions paid in respect of the worker into the
trust fund and standing to his or her worker’s account, although not a present right to
immediate payment as it was contingent upon severance.
 The proprietary nature of their interests was sufficient to give rise to 'beneficial interests
in any property of the trust estate' within the meaning of 'unit' in section 102M of Income
Tax Assessment Act 1936 (Cth).
 The ruling request did not specify a crucial fact relating to the Trust Deed, which was
whether there was a determination by the trustee as to whether the workers were 'active
workers' as required under the Deed, and how that impacted upon the Trust and the
judgment is qualified in this respect.
15/05/15 Hua Wang Bank Berhad v
(No 19)
[2015]
FCA 454
Perram Commissioner In a judgment issued in late December 2014, the Federal Court held that each of the taxpayers was
resident in Australia and liable to tax on the proceeds of the sale of shares. The Court also held that
the shares were trading stock of the taxpayers.
The issue in this case was whether section 70-40(2) of the Income Tax Assessment Act 1997 (Cth)
required the value of the taxpayers’ shares in each year in dispute to be valued at nil under the
trading stock rules if no assessment had been issued for the preceding income year. The taxpayers
maintained that if they elected a valuation method under the trading stock rules and established the
value of trading stock there was no need for there to be an assessment issued by the Commissioner
and that section 70-40(2) did not require such an assessment.
Judgment: The Federal Court held that the process of taking into account the value of trading stock
for the purposes of sections 70-35 and 70-40 of the Income Tax Assessment Act 1997 (Cth) required
the Commissioner to take into account the trading stock in the previous year as part of the process
of assessment. If there was no assessment for the previous year, section 70-40(2) required the
Taxpayer
unsuccessfully
decision summary
below under Bywater
Investments Ltd.

of 47
ME_127270031_1 (W2007)
Taxpayer or
Commissioner
the appeal outcome
and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
value of an item of trading stock at the start of the new income year to be nil.
1/07/15 Commissioner of
Taxation v Warner
[2015]
FCA 659
Perry Commissioner In this case, the Commissioner served notices under both section 264 of the Income Tax
Assessment Act 1936 (Cth) and section 353-10 of the Taxation Administration Act 1953 (Cth)
on the liquidators of a group of companies which were part of a consolidated group for
income tax purposes and a GST group for GST purposes. The liquidators took the position
that section 486 of the Corporations Act 2001 (Cth) required a creditor of a company in
liquidation to obtain a Court order before it can inspect the company’s records held by its
liquidator, and that section 264 was inconsistent with section 486 of the Corporations Act. As
a result, the liquidators did not propose to produce the documents required under the section
264 document notice absent a Court order.
The Commissioner sought a declaration from the Court that the liquidators had to comply
with the section 264 and section 353-10 notices and raised a series of questions of law. The
liquidators were not represented and an amicus curiae was appointed to raise arguments
countering the Commissioner's position.
Judgment: The Court held that section 264 and section 353-10 authorised the Commissioner
to require production of documents from any person, irrespective of whether or not the
recipient of the notice is the liquidator of a company, taxpayer or putative taxpayer in
liquidation. Section 486 of the Corporations Act does not affect the liquidators’ obligation to
comply with a section 264 notice or a section 353-10 notice.
14/07/15 Agius v Commissioner of
Taxation
[2015]
FCA 707
Griffiths Commissioner This was an appeal by the taxpayer against a decision of the Administrative Appeals Tribunal
rejecting the taxpayer's objections to default assessments. The taxpayer, a resident of Vanuatu, had
been convicted of conspiring to defraud the Commonwealth and was serving a period of
imprisonment. The taxpayer was assessed for Australian income tax for the income years 1997 to
2006 in respect of his Australian-sourced income.
The taxpayer argued that the Administrative Appeals Tribunal had applied the wrong legal test in
reaching the conclusion that the income had an Australian source. The taxpayer also argued that
there was no evidence to support the finding that the taxpayer had received amounts other than
amounts in the categories of income identified by the taxpayer (in particular he maintained some of
the amounts assessed to him had been derived by companies or a partnership and not by him), and
that the Tribunal misconstrued the nature of the burden of proof under section 14ZZK of the Taxation
Taxpayer has
Federal Court.

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ME_127270031_1 (W2007)
Taxpayer or
Commissioner
the appeal outcome
and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
Administration Act 1953 (Cth).
Judgment: Appeal dismissed.
There are no mandatory factors that must be taken into account when determining the source of
income, rather a range of factors will be relevant, and the conclusions reached by the Tribunal were
based upon the evidence before it. For the taxpayer to make good a claim of no evidence to support
a finding of fact, it is necessary for him to demonstrate that there was a complete paucity of evidence
to support the relevant finding and that the error was material in affecting the outcome. It was open
to the Tribunal to find that the taxpayer failed to discharge his burden of proof of negating that there
were other Australian sources of income.
31/0715 Davies v Deputy
[2015]
FCA 773
Perram Taxpayer This case considered the interpretation of the employee share scheme provisions in Division 83A of
the Income Tax Assessment Act 1997 (Cth). The taxpayer was an incoming executive director of
Whitehaven.
In April 2009 Whitehaven agreed to grant a company controlled by the taxpayer the right to acquire
shares and be granted options, subject to shareholder approval at an AGM (which occurred in
November 2009). The shares and options were allotted in four stages between December 2009 and
October 2011.
Under section 83A-15 of the Tax (Transitional Provisions) Act 1997 (ITTPA) if a beneficial interest in
a right was acquired before 1 July 2009, and after 1 July 2009 that right become a right to acquire a
beneficial interest in a share, Division 13A of the Income Tax Assessment Act 1936 (Cth) would
apply as if the right had always been a right to acquire a beneficial interest in the share. At issue
was whether for the purposes of the ITTPA the taxpayer's company acquired the rights in April 2009
(and pre-July 2009 so Division 13A applied) or at the date of the shareholder approval in November
2009.
If the shares and options were to be valued for tax purposes as at the date on which the taxpayer's
company acquired the right to have the shares and options issued, any discount to the market value
of the shares and options was to be calculated and brought to tax in the hands of the taxpayer (as an
associate of his company) under the then section 139D(2) of the Income Tax Assessment Act 1936
(Cth), at that earlier date when the shares were trading at a low price, rather than as at the vesting
dates when the share price had increased substantially.
Decision Impact
Statement has been
issued.

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Judgment: The Court held that when the taxpayer entered the agreement for the right to acquire
shares and options, the taxpayer obtained contingent rights to acquire a beneficial interest in a
share. Once the shareholder approval was granted, the right that the taxpayer had acquired under
the agreement became a right to acquire a beneficial interest in a share. The requirements of the
ITTPA were satisfied, and the taxpayer was taxed taking into account the lower price.
Following the decision, the Australian Taxation Office released a Decision Impact Statement
withdrawing Taxation Determination TD 2014/21.
7/08/15 Rigoli v Commissioner of
Taxation
[2015]
FCA 803
Pagone Commissioner This case was an appeal under section 44 of the Administrative Appeals Tribunal Act 1975 (Cth)
from the decision of the Administrative Appeals Tribunal which dismissed the taxpayer's proceedings
challenging default assessments.
The taxpayer argued that the Administrative Appeals Tribunal erred in law in finding that the
taxpayer could not rely on the Commissioner's expert report to prove that the default assessment
was excessive or incorrect. The taxpayer had sought to 'concede' that the income identified in that
report was correct, but then claim depreciation deductions (amongst other expenses) against that
income reducing the overall assessments.
Judgment: The Court found that the Administrative Appeals Tribunal was correct to hold that the
expert report did not establish the taxpayer's income and therefore he could not rely on the report.
The expert had been engaged to provide an opinion on the income, expenses and changes in net
assets of a partnership of which the taxpayer was a partner. The process undertaken by the expert
was similar but not in the same form or substance as evidence of the taxpayer's taxable income. In
addition, the Tribunal was correct to conclude that the taxpayer had not satisfied his burden of proof.
Taxpayer has
Federal Court.
20/08/15 Kafataris v Deputy
[2015]
FCA 874
Davies Commissioner In this case, the taxpayers sought to argue that CGT event A1 as opposed to CGT event E1
occurred in respect of the change in beneficial ownership of a property. The taxpayer argued that as
a consequence rollover relief was available pursuant to section 122-125 of the Income Tax
Assessment Act 1997 (Cth).
The taxpayers owned the property in question and transferred the equitable estate in the property to
a company controlled by the taxpayers in exchange for a promissory note of $9 million. The
company then issued 9 million shares to the taxpayer at $1 each. The taxpayers argued that CGT
event A1 occurred as a constructive trust arose as a consequence of the taxpayers accepting the
Taxpayer has
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company's offer, and that rollover relief was available. For rollover relief to be available, CGT event
E1 must not apply. The taxpayers maintained that CGT event E1 did not arise because the trust over
the property was created by operation of law and not by 'declaration' or 'settlement' within the
meaning of those terms in section 104-55(1) of the Income Tax Assessment Act 1997 (Cth)
Judgment: The Court held that the taxpayers had a clear intention to create a trust over the property
in favour of the company by transferring the equitable estate and this triggered CGT event E1. It
was an express term of the contractual documents that the taxpayers 'should be bound to hold the
property on the trust' for the company. The declaration of trust was in writing as required by law.
The word ‘declaration’ in section 104-55 takes its ordinary meaning: Oswal v Commissioner of
Taxation [2013] FCA 745.
As a matter of ordinary language, a trust is created by 'declaration' when it is created by the holder of
the undivided legal interest in property using words or actions which sufficiently evidence an
intention to create a trust over that property.
In this case the contractual arrangements used the express language of trust and sufficiently
evidenced an intention to create a trust. The more appropriate event was CGT event E1, and
rollover relief was not available.
31/08/15 Thomas v Commissioner
of Taxation
[2015]
FCA 968
Greenwood Commissioner /
Taxpayer (on
penalties)
The taxpayers were a trustee and the two beneficiaries of the family trust (an individual and a
company).
In the 2006 to 2009 income years the trustee had passed resolutions sharing franking credits and
foreign tax offsets between the individual beneficiary at over 90% and the company beneficiary at
less than 10%. Another resolution shared all the other net income (eg dividends) between the
individual beneficiary at less than 1% and the company beneficiary at more than 99%. The purpose
of this was to maximise the refundable tax offsets available only to the individual beneficiary and to
ensure that section 99A of the Income Tax Assessment Act 1936 (Cth) did not apply.
The trustee had sought directions in the Queensland Supreme Court on the interpretation of the trust
deed and the allocation of franking credits. In Thomas Nominees Pty Ltd v Thomas and Ors [2010]
QSC 417, the Supreme Court ruled that the deed allowed the allocation of franking credits
separately from the net income of the trust. One of the issues before the Federal Court was whether
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In 2011, the Commissioner issued amended assessments to the taxpayers and imposed shortfall
penalties. The Commissioner contended the franking credits formed part of the income of the trust
and therefore could not be distributed separately from the dividends to which they attached.
Likewise, the allocation of other credits such as foreign tax credits was similarly at issue. The
taxpayer objected to both the assessments and the application of penalties.
Judgment: The Federal Court held that:
 The franking credits could not be dealt with by the trustee separately from the franked
distributions to which they were attached, as section 207-55 required the franking credits and
the dividends to be connected. The approach of the taxpayers represented an 'impermissible
un-linking inconsistent with the legislation'.
 Franking credits could not be 'streamed' independently from the net income of the trust in
contrast to fully franked dividends which were 'dividends' and represented a category of
distributable trust income.
 The Court considered that in most cases there is a difference between the distributable income
of the trust and the section 95(1) net income of the trust estate. In contrast to the finding of the
Queensland Supreme Court, the distributable income of the trust was its 'net income' as
calculated under section 95(1), not trust income.
 Taxation Ruling TR 92/13 was not relevant as it failed to correctly state the position under
Division 207 of the Income Tax Assessment Act 1936 (Cth).
 The Commissioner was not prevented from making submissions on all questions of fact and law
in issue in the present proceedings, even though there were directions made by the Queensland
Supreme Court. The directions from the Supreme Court were made in the context of
proceedings which were not contested and where the Commissioner was not a party. The
Commissioner had to form a view based on the tax law. Further, there was no authority for the
view that the principle of estoppel applies to the construction of a trust deed.
 The Court set aside the shortfall penalties on the basis that they were excessive in the
circumstances given that the taxpayer had a reasonably arguable position relying on the
Queensland Supreme Court decision and Taxation Ruling TR 92/13 (now withdrawn), which
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distributed to beneficiaries.
3/09/15 Bai v Commissioner of
Taxation
[2015]
FCA 973
Rares Taxpayer This was an appeal by the taxpayer against the decision of the Administrative Appeals Tribunal.
The Commissioner had amended the taxpayer's 2005 assessment pursuant to section 170(1) item 5
of the Income Tax Assessment Act 1936 (Cth) after conducting a tax audit, on the basis that he had
formed the opinion there had been evasion.
The amendment resulted in the taxpayer's taxable income being assessed at almost $1.2m instead
of the $13,790 that she had been returned. Amongst other things, the Commissioner claimed there
had been a large number of unidentified deposits totalling $1.18m into the taxpayer's bank account
in the relevant financial year.
The taxpayer appealed on a number of bases including whether she had received procedural
fairness, whether the evidence established the receipts were not income and whether she had to
show there was no fraud and evasion.
Judgment: The Court allowed the appeal and considered the Tribunal had erred in the way in which
it considered and applied the onus of proof to the taxpayer's challenge to the Commissioner's
opinion that there was fraud or evasion. The Court held that the Tribunal had erred when it stated
that the taxpayer's onus of proof was to exclude the possibility of there being fraud or evasion, as
opposed to establishing that on the balance of probabilities.
The Court said it was not possible to discern any error in the Tribunal's conclusion as to the
characterisation of those receipts and indicated that it would have rejected the procedural fairness
ground although it was not necessary to determine this issue. The Court ordered that the challenge
to a 2005 tax assessment should be remitted to the Administrative Appeals Tribunal.
Commissioner has
Federal Court.
18/09/2015 Deputy Commissioner of
Taxation v Ryan
[2015]
FCA
1037
Edelman Commissioner The respondents were the trustees and only members of a self managed super fund (SMSF).
Between 2009 to 2012, the SMSF made a number of loans and payments to the respondents. The
loans and payments were in breach of the Superannuation (Industry) Supervision Act 1992 (Cth)
(SIS Act). The Deputy Commissioner sought declarations as to those contraventions and penalties
under section 196 of the SIS Act. The contraventions of the SIS Act were not in question.
Judgment: The Court imposed penalties of $20,000 each and issued declarations specifying the
contraventions of the SIS Act.

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29/09/2015 Bell Group Limited (in
liq) v Deputy
Commissioner of
Taxation
[2015]
FCA
1056
Wigney Taxpayer In 1991, a liquidator was appointed to the taxpayer and a number of related entities. In 2008
the taxpayer commenced proceedings in the Supreme Court of Western Australia against a
number of banks (including NAB). The taxpayer was successful, but the banks obtained
special leave to appeal to the High Court. Prior to the appeal however, the parties entered into
a Deed of Settlement which provided that the banks pay a settlement sum to the liquidator to
be held for the benefit of the taxpayer and related entities.
In 2015, the Commissioner issued garnishee notices under section 260-5 of Schedule 1 to the
Taxation Administration Act 1953 (Cth) to NAB in respect of tax liabilities arising from the
payment of the settlement sum. At this stage the funds held by NAB pursuant to the Deed of
Settlement had not yet been distributed.
The taxpayer sought to have the garnishee notices declared invalid on the basis that they
were an attachment against the property of the taxpayer and therefore void by reason of
section 468(4) of the Corporations Act 2001 (Cth). This issue had been considered by the
High Court in Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation (2009) 239 CLR
346.
The Commissioner asserted that the subject of the notice referred to a post-liquidation tax
liability and that his right to seek a remedy in respect of this liability was preserved by
section 254(1)(h) of the Income Tax Assessment Act 1936 (Cth), which was to be given
priority over section 468(4) of the Corporations Act. The Commissioner asserted that Bruton
Holdings only applied in relation to pre-liquidation tax liabilities.
Judgment: The Court held that Bruton Holdings equally applied to post-liquidation tax
liabilities. The Court held that section 260-45 of Schedule 1 to the Taxation Administration Act
(in respect of pre-liquidation tax-related liabilities) and section 254(1)(h) require the liquidator
to set aside amounts to meet expected tax debts, but leave questions of payment and priority
to the Corporations Act. The Court found that section 254(1)(h) did not confer a remedy for
the Commissioner as against property of the taxpayer once winding up had commenced. The
Court held that it was important to note that section 254(1)(h) used the word 'attachable' and
whether the liability was 'attachable' was determined on the same basis as was considered in
Bruton Holdings.
Decision Impact
Statement has been
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07/10/2015 Tech Mahindra Ltd v
Commissioner of
Taxation
[2015]
FCA
1082
Perry Commissioner This case considered Article 7 and Article 12 of the Australia/India Double Tax Agreement
(the relevant Double Tax Agreement considered was the agreement pre-2011 amendments).
The most important Articles considered were:
 Article 12(4) which provided that amounts constituting royalties are to be dealt with under
Article 7 or 14 where the services in respect of which royalties are paid are effectively
connected to a permanent establishment in the source State; and
 Article 7(7) which provided that where profits included items of income dealt with under
other articles, then those other articles were not affected by Article 7.
The taxpayer was a company resident in India and registered in Australia. It had offices in
Sydney and Melbourne through which it provided software products and IT services
(including software development) to customers in Australia, and it was not disputed that
those offices constituted permanent establishments under the Australia/India Double Tax
Agreement. The services were provided to the customers partly by employees located in
Australia and partly by employees located in India. The taxpayer did not dispute that income
was taxable in Australia to the extent it was attributable to services carried out by Australian
employees.
The issue in this case was whether income derived from services the taxpayer provided to
Australian customers which were performed by employees located in India was taxable in
Australia.
The Double Tax Agreement at the time included Article 7(1)(b) which provided (on the facts of
the case) that Australia could tax sales of goods or merchandise of the same or a similar kind
to those sold through the permanent establishment, as well as income from other business
activities of the same or a similar kind as those carried on through the permanent
establishment.
The Commissioner's assessment proceeded on the basis that Article 7(1)(b) was applicable,
and Article 12 did not apply, as Article 12(4) provided that Article 7 applied and Article 7(1)(b)
applied to provide Australia the right to tax wherever the activities took place.
In the alternative, the Commissioner contended the payments from Australian customers
were 'royalties' (i) meeting the applicable definition under Article 12 (ie the 'rendering of any
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services (including those of technical or other personnel) which make available technical
knowledge, experience, skill, knowhow or processes or consist of the development and
transfer of a technical plan or design'), (ii) those royalties arose in Australia, and (iii) Australia
could impose tax. Under that alternative argument, the Commissioner maintained that Article
12(4) only prioritised Article 7 over Article 12 to the extent that there was an attribution to a
permanent establishment, and not otherwise.
The taxpayer objected, and appealed the Commissioner's disallowance of that objection to
the Federal Court.
Judgment: The Court dismissed the taxpayer's proceedings, although the Commissioner's
assessments were reduced. The Court held:
 Article 7 did not apply, and the income from the services supplied by Indian employees
was not 'business profits' taxable in Australia.
 However Article 12 did apply to some of the payments, as some of the services
comprised 'royalties' as defined. Those royalties were deemed to have an Australian
source by virtue of Article 23, and Australia could impose tax to that extent (subject to
Article 12). Those payments were taxable in Australia in accordance with section 6-5(3)(a)
of the Income Tax Assessment Act 1997 (Cth).
 Article 7(7) prioritised Article 12, and Article 12(4) did not apply as there was no effective
connection to a permanent establishment in Australia. The contractual arrangements
between customers and the Australian permanent establishment in respect of the
services was not sufficient for an 'effective connection' rather the test is one of whether
profits are attributable to the work of the permanent establishment.
 The taxpayer was contending that while there was an 'effective connection' for the
purposes of Article 12(4) requiring Article 7 to have priority, there was no effective
connection or attribution to a permanent establishment for the purposes of Article 7, and
tax did not arise. The Court held there was no discernible purpose for that outcome and it
was not correct.
 The services provided by the Indian employees of the taxpayer were 'royalties' as those
services in part consisted of the 'development and transfer of a technical plan or design'.
The Court held for completeness that the services did not 'make available' technical

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knowledge – technical knowledge was not supplied, services using that knowledge was.
19/10/2015 Millar v Commissioner of
Taxation
[2015]
FCA
1104
Griffiths Commissioner This was an appeal of a decision by the Administrative Appeals Tribunal which affirmed the
Commissioner's decision to issue amended notices of assessment and notices of shortfall penalties
(for intentional disregard of tax law).
The facts involved an Australian Superannuation fund controlled by the taxpayers (a husband and
wife) which deposited money with a Samoan Bank (Hua Wang Bank Berhad), and the subsequent
entry into a loan agreement with the Bank lending funds to the taxpayers in their personal capacity
(the funds were used to purchase an apartment on the Sunshine Coast). The Administrative Appeals
Tribunal affirmed the Commissioner's view that the taxpayers impermissibly had early access to
superannuation benefits by making the deposit and then entering into the loan arrangement, and that
the transaction was a sham loan transaction..
The Tribunal held the transaction was contrary to Part 6 of the Superannuation Industry Supervision
Regulations 1994 (Cth), and attracted taxation under section 26AFB of the Income Tax Assessment
Act 1936 (Cth). The arrangement was made by the taxpayer's financial advisor (Mr Vanda Gould)
and it was common ground that the taxpayer had little understanding of the transaction.
The taxpayers appealed on a number of questions of law, including whether a 'sham' could arise
given their subjective intention, whether there had been fraud or evasion, and whether the Tribunal's
factual holdings meant that section 26AFB could not be applicable.
Judgment: The Court dismissed the taxpayer's appeal and held:
 The knowledge and subjective intention of Mr Gould could not be disregarded for the purposes
of considering whether the transaction was a sham, and was properly imputed by the Tribunal to
the taxpayers. Where an advisor acts as an agent, his intention is relevant for the purposes of
inquiry.
 The Court held that the burden was on the taxpayers to disprove fraud or evasion and the
Tribunal did not err in law on that aspect or on the application of section 26AFB.
Taxpayer has
Federal Court.
21/10/2015 Study and Prevention of
Psychological Diseases
Foundation v
[2015]
FCA
1117
Greenwood Taxpayer The taxpayer appealed against the decision of the Administrative Appeals Tribunal upholding the
Commissioner's decision to revoke endorsements as a charitable institution and health promotion
charity under the Income Tax Assessment Act 1997 (Cth), A New Tax System (Goods and Services

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Commissioner of Taxation Tax) Act 1999 (Cth) and Fringe Benefits Tax Assessment Act 1986 (Cth) respectively, and to issue
assessments and apply penalties and interest.
Judgment: While the Court agreed with the Tribunal that the taxpayer was not a charitable institution
because it did not fulfil the charitable purposes it asserted, the Court held in favour of the taxpayer
and remitted the matter back to the Tribunal.
The Court held that the Tribunal failed to address two of the taxpayer's submissions (relating to
whether the auditor was impartial, and whether the Commissioner was required to comply with the
Taxpayers' Charter and the Compliance Model) and an inference arose that those matters were not
considered.
23/10/2015 Chevron Australia
Holdings Pty Ltd v
Commissioner of
Taxation (No 4)
[2015]
FCA
1092
Robertson Commissioner This was the first major case in Australia to consider transfer pricing issues in relation to
cross border related party financing.
The dispute concerned the transfer pricing implications of a Credit Facility Agreement dated
6 June 2003 between Chevron Australia Holdings Pty Ltd (CAHPL) and Chevron Funding
Corporation Inc (CFC), a Delaware based wholly owned subsidiary of CAHPL. The facility
was for the AUD equivalent of USD 2.5 billion. The USD funds had been raised by CFC from
the commercial paper market at approximately 2% interest and on-lent to CAHPL in AUD at
approximately 9% interest.
The Commissioner denied a proportion of the deductions claimed by CAHPL for the interest
paid to CFC. The Commissioner issued amended assessments for the 2004 to 2008 tax years
with penalties. The assessments relied upon determinations made by the Commissioner
pursuant to Division 13 of the Income Tax Assessment Act 1936 (Cth). In addition, the
Commissioner made determinations under Division 815-A of the Income Tax Assessment Act
1997 (Cth) for the 2005 to 2007 tax years. Division 815-B was not considered as a part of this
case.
The central issue was whether interest charged by CFC to CAHPL exceeded the arm's length
amount, but other issues arose including the constitutional validity of Division 815-A, and
whether Article 9 of the Australia-United States double tax agreement operated as an
independent basis for assessment.
Judgment: The Federal Court held in favour of the Commissioner, on the basis that the
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taxpayer had not discharged its onus of proof that the assessments were excessive. The
case turned on the evidence that was before the Court.
Critical holdings included:
 The Facility between CAHPL and CFC did not contain any security or covenants which
would be expected in arm's length agreements. If such provisions were included, the
arm's length interest rate would have been lower.
 Credit rating agency evidence presented by both the taxpayer and the Commissioner was
not held to be relevant because the Court held that independent lenders do not rely upon
published credit ratings, and instead complete their own credit analysis.
 Although it was permissible to take the implicit support of a parent entity into account, it
had very little impact on pricing by a lender (this was particularly important as the
Commissioner had maintained that implicit support would have led to a higher credit
rating for the borrower, and a reduced interest rate).
 An arm's length loan may have been made in AUD for commercial reasons, despite
carrying a higher interest rate than a loan in USD. This was in response to submissions
from the Commissioner which focused on the 'property' for the purposes of the transfer
pricing provisions.
 'Consideration' in Division 13 was not limited to the interest rate, and included valuable
promises of the borrower (such as restrictive covenants and security).
 Division 13 does not treat a taxpayer which is a subsidiary of an entity as a stand-alone
entity (ie without taking into account its status as a subsidiary).
 Article 9 of the Australia/United States double tax agreement did not operate to provide
an independent taxing power.
 Division 815-A was constitutionally valid.
 The transfer pricing rules can be applied irrespective of whether the amount of debt is
below the safe harbour thresholds under the thin capitalisation rules.
13/11/2015 Rosgoe Pty Ltd v [2015] Logan Taxpayer This was an appeal from a decision of the Administrative Appeals Tribunal. Commissioner has

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Commissioner of Taxation FCA
1231
The taxpayer was the trustee of a discretionary trust. The taxpayer sought a private ruling with
respect to the proposed sale of two adjoining parcels of land. Specifically, the Commissioner was
asked to consider whether the sale of land would amount to a mere realisation of a capital asset, and
subject to the CGT rules.
The taxpayer had initially purchased the land with the intention of developing and selling it as part of
a joint venture. However, during the financial year the project fell through and the taxpayer
contended that the land no longer formed part of his trading stock.
In the ruling the Commissioner found that the sale was an isolated, commercial transaction and that
proceeds would therefore be assessable as income, and would not be taken into account under the
CGT rules. The taxpayer objected, and the matter then proceeded to the Administrative Appeals
Tribunal.
The Tribunal upheld the ruling, making a finding of fact that the taxpayer was carrying on a business
during the relevant period. The Tribunal held that the sale occurred during the ordinary course of
business (rather than an isolated transaction, as had been held by the Commissioner in the ruling).
Judgment: The Court held that the Administrative Appeals Tribunal did not have jurisdiction to
assess the proceeds of the sale as income on an alternative basis to that of the Commissioner.
When reviewing an objection decision in respect of a private ruling, the Tribunal was not permitted to
redefine the 'arrangement' as stated in the ruling, and not permitted to engage in a fact finding
exercise.
On the Commissioner's description of the facts in the ruling, the property was acquired for carrying
out a scheme that was later abandoned. When the disposal of the property occurred, the
Commissioner's ruling stated that the profit did not arise from the carrying on or out of the scheme,
and there was no other basis for finding on the facts in the ruling that those profits were on revenue
account.
The Court therefore found (in obiter) that the Commissioner was in error in assessing the proceeds
as income rather than the mere realisation of a capital asset.
The matter was remitted to the Tribunal for a further hearing.
appealed to Full
Federal Court.
04/12/2015 Pratten v Commissioner of [2015]
FCA
Robertson Commissioner The taxpayer sought orders that the amended assessments issued by the Commissioner be
declared invalid and quashed. The taxpayer also sought an interlocutory injunction preventing the

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Taxation 1357 Commissioner from making any further use of the amended assessments.
The taxpayer's central submission was that 'there is sufficient evidence to demonstrate the
Commissioner’s audit processes leading up to the amendment(s) of the assessments, was
performed in reckless disregard of due and fair process, and in a manner contrary to the principles of
administrative law and the doctrine of natural justice ...'
Judgment: The taxpayer's application failed on the facts and the law.
04/12/2015 Keris Pty Ltd (Trustee) v
Deputy Commissioner of
Taxation
[2015]
FCA
1381
Siopis Commissioner Pursuant to section 255-100 of Schedule 1 to the Taxation Administration Act 1953 (Cth), the
Commissioner issued a notice requiring the taxpayer to give security for the due payment of future
tax-related liabilities from a proposed subdivision. That notice sought to secure $350,000 by way of a
mortgage over the land owned by the taxpayer which the taxpayer proposed to subdivide.
The notice included a statement to the effect that ATO officers had estimated that the sale of the
subdivided lots would cause the taxpayer to incur GST liabilities of approximately $373,886 after
taking into account development costs. The taxpayer commenced judicial review proceedings to set
aside the notice.
Judgment: The Court did not accept the taxpayer's contention that the power in section 255-100 to
issue the notice to provide security was not enlivened because the taxpayer had by the date of the
notice not yet subdivided the land and so an event potentially triggering a future tax liability had not
arisen. The Court held a 'future' liability could arise from anticipated facts on the plain meaning of the
section, and that the other requirements in the section were satisfied. Constitutional arguments
about the validity of section 255-100 were also dismissed.
Taxpayer has
Federal Court.
07/12/2015 Orica Limited v
Commissioner of
Taxation
[2015]
FCA
1399
Pagone Commissioner The taxpayer was the head entity of the Orica Australia consolidated group. This case
considered the application of Part IVA of the Income Tax Assessment Act 1936 (Cth), whether
the taxpayer had a reasonably arguable position, and the application of penalties under
section 284-145 of Schedule 1 to the Taxation Administration Act 1953 (Cth). The issues
related to the 2004-2006 income years (ie prior to the amendments to Part IVA in 2012).
The background revolved around the booking of US tax losses by the Orica group in its
consolidated balance sheet. The US tax losses could only be booked if it was virtually certain
those losses would be used in future against income. Because the US operations were loss
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ordinary trading. The lack of recognition of the US tax losses in the balance sheet had the
impact on the reporting of the group's profits, reducing assets and increasing the group's
income tax expense. If the losses could be booked, there would be an increase in Orica's
reported consolidated profits, by way of a reduction in its income tax expenses.
When the Group considered that issue, ideas were considered to generate income in the US.
The arrangement adopted involved a degree of circular financing which in relation to
Australia involved:
 A member of the Orica tax consolidated group in Australia ('OEH') subscribing for three
tranches of redeemable preference shares (RPS) in a US subsidiary which had the US tax
losses ('OUSSI'). The RPS carried a right to receive a non-cumulative annual dividend
payable out of distributable profits. The subscription was funded by OEH borrowing
funds from another member of the Australian consolidated group ('OFL');
 OUSSI lending the funds to OFL at interest rates ranging from 4.46% to 5.43% per annum,
guaranteeing OUSSI a flow of interest income in the US and enabling the US tax losses to
be booked in the consolidated balance sheet;
 OFL on-lending the funds it borrowed from OUSSI to OEH.
From an Australian income tax perspective, the consolidated group claimed a deduction (at
30%) for interest incurred on the loan from OUSSI, remitted withholding tax to the ATO (at
10%) on the interest payments and was not assessed on the dividends received on the RPS.
The Commissioner sought to apply Part IVA to deny deductions for interest on the loans from
OUSSI on the basis that the dominant purpose of the scheme was to obtain those
deductions.
The case focused exclusively on the purpose element in Part IVA, as the scheme and tax
benefit elements of Part IVA were conceded.
The taxpayer argued the scheme was undertaken in order to re-recognise the US tax losses
and in turn increase accounting profits. This, in turn, was anticipated to improve investor
perceptions of the group's financial performance, increase Orica’s share price, reduce the
risk of a hostile takeover and reduce the risk of a breach of financial covenants. The taxpayer
maintained that the dominant purpose of the scheme was not to obtain tax benefits.

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 The evidence did not establish a causal link with the purposes asserted by the taxpayer
and, in any case:
'any consequence from the schemes to the perceptions of investors or…financiers would
necessarily have arisen from the after tax effect on reported profits for the group arising
from the deductions for the interest paid…'
 The shape or form of the transaction adopted indicated the presence of a dominant
purpose of obtaining a tax benefit.
 Citing Spotless and Hart, the existence of a commercial purpose relating to the
accounting treatment did not vitiate the fact that obtaining the tax benefit was the
dominant commercial purpose.
 In reality, the accounting effect was an increase in group profits by the amount of the tax
deductions obtained. The commercial benefit identified by the taxpayer represented a
monetisation of a tax benefit, and without the tax benefit the schemes would not have
made commercial sense. This supported the view that the dominant purpose was to
obtain the tax benefits.
 There was insufficient evidence to support the view OUSSI would otherwise have entered
into a financing with an external provider, and generated income from a bank deposit.
 In assessing the taxpayer's liability for penalties, the Court found that the taxpayer’s
position did not meet the 'reasonably arguable' threshold and that penalties were
appropriately applied. The taxpayer had argued at the time it entered the scheme the High
Court's judgment in Hart had not been issued, but there was no evidence how the
decision in Hart could have affected its conclusion.
17/12/2015 Normandy Finance and
Investments Asia Pty Ltd v
[2015]
FCA
1420
Edmonds Taxpayer /
Commissioner
The taxpayers (each of which was an Australian company) received payments of money from related
companies incorporated outside Australia and not resident in Australia. Mr Vanda Gould was the
adviser involved in these transactions. The taxpayers maintained the payments were loans and the
Commissioner maintained they were sham transactions designed to bring income into Australia, and
assessed those receipts as income. The taxpayers' objections were disallowed.

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Another taxpayer which was the trustee of a trust claimed a capital loss from the disposal of a
receivable to a related company. This was disallowed by the Commissioner on the basis that the
arrangements were sham arrangements, and consequential assessments were raised to the trustee
taxpayer and to individual taxpayers who were beneficiaries of the trust. An issue arose as to
whether the amount included in the section 95 net income of the trust was a loan from a beneficiary
company or merely recognition of unpaid present entitlements of anterior years of income. The
taxpayers' objections were also disallowed.
Penalties were also imposed by the Commissioner on each of the taxpayers, and objections related
to those penalties were also disallowed.
The taxpayers (who were all related parties) appealed to the Court.
 The parties were not dealing on arm's length terms.
 After a review of the case law relating to 'shams', neither the loan transactions nor the trustee
taxpayer's transfer transaction was a sham, as on the evidence presented those transactions
were intended to operate as contended by the taxpayers. Accordingly the taxpayers' appeals
were allowed to that extent and the assessments were set aside.
 That factual issues alleged by the Commissioner to be relevant to whether shams arose, were
not relevant.
 The trustee taxpayer had not shown on the balance of probabilities that a capital loss arose from
the transfer transaction. Accordingly the Commissioner's assessment was upheld to that extent.
 Penalty assessments were set aside to the extent that the Commissioner's assessments had
been set aside.
17/12/2015 Oswal v Commissioner of
Taxation
[2015]
FCA
1439
Griffiths Commissioner The taxpayers' solicitors sought an undertaking from the Commissioner that if the taxpayers returned
to Australia that the Commissioner would not issue a departure prohibition order against them. This
was refused.
The taxpayers applied for judicial review under section 39B of the Judiciary Act 1903 (Cth) of the
Commissioner's refusal to give undertakings not to issue a departure prohibition order. The
taxpayers claimed that the Commissioner misconstrued his powers under section 3A of the Taxation

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and (iii) whether a
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Statement has been
issued by the ATO
Administration Act 1953 (Cth) by refusing to give the undertakings and acting unreasonably.
Judgment: The Court held that the Commissioner did not make an unreasonable decision. It was
open to the Commissioner to decline to give the undertaking sought having regard to the breadth of
the discretion under section 14S of the Taxation Administration Act 1953 (Cth).
22/12/2015 Breakwell v Commissioner
of Taxation
[2015]
FCA
1471
White Commissioner This was an appeal by the taxpayer from a decision of the Administrative Appeals Tribunal
concerning the whether the taxpayers were entitled to small business CGT concessions requiring
(amongst other matters) the satisfaction of the maximum net asset value test (section 152-15 of the
Income Tax Assessment Act 1997 (Cth)) in respect of the sale of a finance broking business.
The East Terrace Unit Trust conducted the finance broking business and the Alan Breakwell Family
Trust was a beneficiary of the Unit Trust. The taxpayers were, in turn, beneficiaries of the Alan
Breakwell Family Trust. The case concerned whether a loan by the family trust to Alan Breakwell (a
beneficiary) in 1998 should be included as an asset in the maximum net asset value test (MNAVT).
The Administrative Appeals Tribunal held that the loan should be included, and this meant the
maximum value of $6,000,000 under the MNAVT was exceeded and the taxpayers would not be
entitled to claim CGT relief. The taxpayers appealed to the Court on the grounds that the loan was
statute barred by section 35(a) of the Limitation of Actions Act 1936 (SA) and was not going to be
repaid, so it was either of nil value, or could not be taken into account at law.
Judgment: The Court held that the loan was not statute barred and affirmed the decision of the
Administrative Appeals Tribunal .
Section 35(a) of the Limitation of Actions Act 1936 (SA) does not have the effect of extinguishing a
claim in contract (or for repayment of a debt) after six years. That provision bars the remedy, but not
the cause of action. Further, the taxpayers' submissions overlooked the effect of section 48 of the
Limitation of Actions Act 1936 (SA), which empowers the courts to extend limitation periods,
including those set by section 35(a). Finally it could not be said that the loan had no value.

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and (iii) whether a
Decision Impact
Statement has been
issued by the ATO
28/01/15 Taras Nominees Pty Ltd
as Trustee for the Burnley
Street Trust v
[2015]
FCAFC 4
Perram,
Robertson
and Pagone
Commissioner This was an appeal by the taxpayer from the Federal Court.
The Federal Court had affirmed the Commissioner's assessments and confirmed that a CGT
event had occurred when the taxpayer entered into a trust deed and joint venture agreement
and transferred land to a trustee. The taxpayer had transferred legal title of its land to a third
party to act as trustee and nominee of the joint venture, but remained a beneficiary of the trust.
The Federal Court held that CGT event E1 applied as there had been a 'settlement' within the
meaning of section 104-55(1) of the Income Tax Assessment Act 1997 (Cth) or that CGT event
A1 arose on the basis that the taxpayer did not remain beneficial owner of the land. The Federal
Court held that a deemed gain being the market value of the asset arose to the taxpayer, less an
allowed portion of development costs.
The taxpayer appealed to the Full Court.
Judgment: The Full Court dismissed the appeal.
The transfer of legal title in the land to a trustee subject to the joint venture agreement
constituted CGT Event E1. The Court also held that because of the joint venture agreement the
taxpayer did not remain the sole beneficiary of the trust.
Although the taxpayer had not received capital proceeds from the transfer it had received
valuable rights in consideration in the form of interests in the land of other members of the joint
venture. The Court held that Commissioner had correctly included development costs and soil
remediation costs when calculating the land's market value, although the Full Court allowed
development costs to be added to the cost base of the land.
23/02/15 Atkinson v Commissioner
of Taxation
[2015]
FCAFC
18
Foster, Yates
and Gleeson
Commissioner This was an appeal by the taxpayer from the Federal Court.
The Federal Court dismissed an application by the taxpayer because the application was
frivolous and vexatious. The taxpayer sought $450,000 from the Commissioner, and an order
that the tax debts owed by the taxpayer to the Commissioner be discharged. The Commissioner
sent the taxpayer a notice of account with details of a $96,592 income tax debt. The taxpayer
FULL FEDERAL COURT 2015 TAX CASES

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sent a letter responding to the notice of account, enclosing what he claimed was a bill of
exchange to the value of $1 but which was the statement of account marked up in handwriting
with various words. In a convoluted argument based on the Bills of Exchanges Act 1909 (Cth)
the taxpayer maintained he had satisfied the tax debt and the Commissioner owed him or his
assignee money.
Judgment: The appeal was dismissed with costs as the proceedings were vexatious. The Full
Court agreed with the Federal Court that provisions in the Bills of Exchange Act 1909 (Cth) were
not engaged when the Commissioner sent the statement of account to the taxpayer. The bill of
exchange was not accepted by the Commissioner. Writing on a statement of account did not
make it a bill of exchange. The bill of exchange, the stamps or handwritten notes on the account
statement were of no legal effect.
v McGrouther
[2015]
FCAFC
34
Allsop,
Pagone and
Davies
Commissioner This was an appeal by the Commissioner from the Federal Court.
In this case the taxpayers lodged objections against amended assessments. Prior to
determining the objections the Commissioner issued a notice under section 264 of the Income
Tax Assessment Act 1936 (Cth) requiring one of the taxpayers to attend for an examination.
Two days later, the taxpayers served notices under subsection 14ZYA(2) of the Taxation
Administration Act 1953 (Cth) requiring the Commissioner to determine their objections within 60
days (if that did not occur the objections were deemed disallowed).
The taxpayers then commenced proceedings in the Federal Court challenging the validity of
decision to issue the section 264 notice. Following discussions between the parties it was
agreed that:
 the Commissioner would defer the examination until at least 7 days after final orders were
made determining the validity of the section 264 notice; and
 the taxpayer would withdraw the notices given under subsection 14ZYA(2) of the Taxation
Administration Act 1953 (Cth), and not to issue further notices under subsection 14ZYA(2) in
respect of the objections until the validity of the section 264 notice was determined.
A preliminary question arose at the Federal Court as to whether the taxpayer's section 14ZYA
notice could be withdrawn, and the Court held that there was no explicit or implicit power to
withdraw such a notice. The Commissioner appealed, and the taxpayer filed proceedings under
Decision Impact
Statement has been
issued. An
application by the
taxpayer for special
leave to appeal to the
High Court was
dismissed.

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Part IVC challenging the deemed disallowance of the objection. The Commissioner sought to
have those proceedings struck out.
Judgment: The Full Federal Court allowed the appeal. The Court held that a taxpayer could
waive reliance on a notice given under subsection 14ZYA(2) of the Taxation Administration Act
1953 (Cth), because it was a provision existing solely for the benefit of the taxpayer and not one
where observance was a condition of the exercise of a statutory power or enacted for a wider
public purpose. Waiver of a subsection 14ZYA(2) notice can be validly effected by a notice to
the Commissioner withdrawing the notice.
As the taxpayers had waived the subsection 14ZYA(2) notice given to the Commissioner, the
Court held that there was no deemed objection decision and the Federal Court had no
jurisdiction to hear the Part IVC application made by the taxpayers. Those proceedings were
struck out.
v AusNet Transmission
Group Pty Ltd
[2015]
FCAFC
60
Kenny,
Edmonds and
Greenwood
Commissioner This was an appeal by the Commissioner from the Federal Court.
This case considered the proper method of apportioning purchase price to copyright assets
purchased by the taxpayer without an explicit statement of value. The taxpayers had claimed
deductions in the financial years from 1998-2005 as a result of a purchase of a business. One
taxpayer had claimed deductions on its own behalf ('the first taxpayer') and the other as head
company of a consolidated group ('the head company taxpayer') which had been subsequently
joined by the first taxpayer.
Under the purchase agreement, the assets of the business were defined to include the
intellectual property rights of the business, which included copyright in technical drawings, plans
and other works which were critical to the operation and maintenance of the business. The case
proceeded on the footing that the works were original works in which copyright subsisted. The
taxpayers claimed the copyright in the works was a ‘unit of industrial property’ in relation to
which an amount equal to the residual value of the unit (calculated in accordance with a
prescribed formula) was an allowable deduction under the former Division 10B of Part 3 of the
Income Tax Assessment Act 1936 (Cth), and the former Division 373 and Division 40 of the
Income Tax Assessment Act 1997 (Cth).
The main issue before the Federal Court was in respect of the first taxpayer and was the
interpretation of section 124R(5) of the Income Tax Assessment Act 1936 (Cth) for the purposes
Taxpayer sought
special leave to
appeal to the High
Court – this was later
withdrawn (we
understand the case
was settled).

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of determining the amount of the purchase price to be allocated to the copyright in the works. In
particular, the issue was whether that purchase price allocation process was subject to the
Commissioner's discretion or whether it operated objectively requiring valuation evidence to be
considered. The Commissioner had determined a nil allocation.
The Federal Court held that the question of value and allocation was to be determined
objectively according to the applicable valuation methods (as an arm's length transaction was
being considered in the case). On the evidence the Federal Court preferred the midpoint of the
valuations previously obtained by the taxpayer as the basis of valuing the copyright. The matter
was remitted to the Commissioner to revalue in light of the decision. The Commissioner
appealed to the Full Court.
Judgment: The appeal was allowed.
The Court held:
 On the threshold question of whether the first taxpayer could challenge the Commissioner's
determination pursuant to section 124R(5) using Part IVC proceedings as opposed to as a
judicial review proceeding, the majority of the Court said the first taxpayer could do so.
 On the question of whether section 124R(5) involved a valuation of the copyright works, it
was held that it did require a valuation.
 However, the expert evidence before the Federal Court was held to be misconceived and
should not have been admitted as evidence. In particular, factors which suggested that the
copyright works had no value were not considered appropriately. The Court considered that
if the first taxpayer had not acquired the copyright, it would have acquired an implied licence
to use the copyright – with the copyright being of little to nil value as a consequence.
 As the expert evidence did not show that the Commissioner's assessment of the first
taxpayer was excessive, the Commissioner's assessment was upheld.
 In relation to the head company taxpayer, the Court held that there were unresolved
questions in relation to the valuation of the copyright at the relevant time that the first
taxpayer joined the consolidated group, and remitted the matter to the Federal Court for
determination.

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07/05/15 Channel Pastoral
Holdings Pty Ltd v
Commissioner of
Taxation
[2015]
FCAFC
57
Allsop,
Edmonds,
Gordon,
Pagone and
Davies
Commissioner This was a special case stated to the Full Court and was funded by way of test case
funding.
This case considered the application of Part IVA of the Income Tax Assessment Act 1936
(Cth) to a consolidated group. It followed the decision in FCT v Macquarie Bank Limited
[2013] FCAFC 13 which somewhat confused the position on that issue. The questions
considered by the Full Court were whether and how the Commissioner can apply Part IVA
in connection with a scheme that involves the creation of a consolidated group.
The critical facts were as follows:
 Channel Cattle Co Pty Ltd (CCC) owned two cattle stations with associated plant and
equipment, trading stock (cattle and horses) and the stations’ stock brand.
 All the shares in CCC were owned by Mr and Mrs Sherwin. They had acquired their
CCC shares prior to 20 September 1985 and were pre-CGT assets.
 Until 31 December 2007, Channel Pastoral Holdings (CPH) was a dormant company.
On that date, the Sherwins agreed to transfer their shares in CCC to CPH for
consideration totalling $61.2m. Following that, CPH became the sole owner of CCC.
The value of the trading stock held by CCC as at 31 December 2007, for the purposes
of Subdivision 70-C of the Income Tax Assessment Act 1997 (Cth), was $6.5m.
 CPH elected to form a consolidated group with effect from 1 January 2008, with CPH
as head entity and CCC as a subsidiary entity.
 In February 2008, CCC entered into a contract to sell the agricultural assets to a third
party purchaser. The sale price of the agricultural assets was $70m. The sale of the
agricultural assets by CCC was completed on 29 February 2008.
The Sherwins could have sold their shares in CCC for $70m without tax consequences.
By entering the above transactions, CPH as head entity of the consolidated group
obtained a capital loss on the sale of the land, derived $25.4m from the sale of trading
stock and derived a deduction of just over $23m as a result of the tax cost setting amount
for the trading stock (as calculated on formation of the consolidated group) exceeding
the value of the trading stock at 30 June 2008.

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The Commissioner contended that if the steps described above had not been entered into
and carried out, it might reasonably be expected that:
 CCC would not have joined the CPH consolidated group with effect from 1 January
2008.
 CCC would have sold the agricultural assets in February 2008 for $70m.
 This meant that for tax purposes (i) there would be no capital loss on the sale of the
land, (ii) CCC would have made an assessable net capital gain of $33.7m on the sale
of the land, (iii) CPH would not have been entitled to a deduction for the trading stock
and CCC would have been entitled to a lower $6.3m deduction, and (iv) CCC would
have derived $25.4m in assessable income from the sale of the trading stock.
The Commissioner issued a number of alternate determinations under Part IVA and
assessments as follows:
 first, a determination to CCC on the basis it had obtained a tax benefit, and to give
effect to that determination an assessment to CPH as head entity;
 secondly, a determination to CPH as head entity and an assessment to CPH;
 thirdly, a determination to CCC, and an assessment to CCC.
The taxpayers contended that the determinations and assessments could not be made
consistently with the consolidation provisions because of the single entity rule in
Division 701 of the Income Tax Assessment Act 1997 (Cth).
The special case considered whether the Commissioner was authorised to issue the
above determinations and assessments. It arose following the earlier Macquarie decision
where the majority of the Full Court held (amongst other matters) that a subsidiary
member of a consolidated group could not be assessed under Part IVA as a result of the
single entity rule, and the head company could not be assessed where under the
counterfactual it was the subsidiary company and not the head company which would
have obtained the tax benefit.
(Note: The authors of this paper understand that it was agreed by the taxpayer that it
would not proceed to challenge the Commissioner's alternative postulate above by

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suggesting that in the alternative the Sherwins would have sold the shares in CCC to the
third party purchaser, without tax consequences arising to them. The case does not
consider potentially arguable issues relating to purpose or tax benefit).
Judgment: All five judges agreed that the third alternative of issuing a determination and
assessment to CCC was authorised, and that CCC remained a 'taxpayer' despite the
single entity rule. In the case of the majority this was because CCC obtained the tax
benefit, and CCC was not a member of the consolidated group for the entire income year .
This meant that section 701-30 provided a mechanism for determining how the provisions
applied to an entity in those circumstances. The majority of the Court also determined
that the first and second alternatives were not valid (this was dissented from by Justices
Pagone and Davies).
11/06/15 John Holland Group Pty
Ltd v Commissioner of
Taxation
[2015]
FCAFC
82
Edmonds,
Logan and
Pagone
Taxpayer This was an appeal by the taxpayers against a decision of the Federal Court.
Under the Fringe Benefits Tax Assessment Act 1986 (Cth), flights paid for by the taxpayers and
taken by the taxpayers’ employees for travel between Perth and Geraldton under fly-in fly-out
arrangements were considered 'external non-period residual fringe benefits'. Section 52 of the
Fringe Benefits Tax Assessment Act operated so that the taxable value of the fringe benefit
would be nil where the costs of the flight would be deductible by the employees under section 8-
1 of Income Tax Assessment Act 1997 (Cth) had the employees paid for the flights themselves.
The taxpayers' employees were required to work at Geraldton and to do so were required to
travel to Perth Airport after which they were flown at the taxpayer's expense to the worksite at
Geraldton. After the end of the work period, the employees were flown back to Perth Airport at
the taxpayer's expense.
At first instance, the Federal Court considered that the costs of the flights would not be
deductible by the employees (had they paid those costs themselves). Amongst other matters,
Commissioner of Taxation v Lunney (1958) 100 CLR 478 was relied upon by the Court when
reaching its conclusion.
Judgment: The appeal was allowed.
The Full Court held that the earlier judgment had misapplied Lunney. The critical factors noted
by the Federal Court which included that the employees were paid during the flights, were
Decision Impact
Statement has been
issued.

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subject to the directions of the taxpayer and were travelling in to the course of their employment,
meant that the employees were not travelling to work but as part of their employment. The cost
of the flights under the statutory hypothesis in section 52(1) of the Fringe Benefits Tax
Assessment Act would be an allowable deduction to them under section 8-1 (had the employees
incurred that cost).
30/06/15 Haritos v Commissioner of
Taxation
[2015]
FCAFC
92
Allsop,
Kenny,
Besanko,
Robertson
and Mortimer
Taxpayer This was an appeal by the taxpayers from a decision of the Federal Court.
The taxpayers had appealed to the Federal Court from a decision of the Administrative Appeals
Tribunal under section 44 of the Administrative Appeals Tribunal Act 1975 (Cth) which requires
appeals to be on questions of law. The taxpayers' proceedings were dismissed by the Federal
Court on the basis that questions of law formulated by the taxpayers were not questions of law
but were seeking a merits review by the Federal Court of the Tribunal's decision. The main part
of this case considered this issue, as opposed to tax technical issues.
The issues considered in the Part IVC proceedings were whether payments received by the
taxpayers from associated companies were income as opposed to loans to them, whether
expenses paid to subcontractors should be deductible to the companies, and whether Division
7A of the Income Tax Assessment Act 1936 (Cth) was applicable. The Tribunal held that the
payments were dividends, or deemed dividends under Division 7A or ordinary income under
section 6-5 of the Income Tax Assessment Act 1997 (Cth). The taxpayer appealed to the
Federal Court.
Judgment: The Full Court allowed the taxpayers’ appeal. The Court held that posing a precise
question of law is not a matter that goes to the existence of the jurisdiction conferred on the
Court. Section 44 of the Administrative Appeals Tribunal Act does not require only a pure
question of law and a 'mixed question of fact and law' was sufficient. This holding expands the
concept of what was previously thought of as a question of law substantiating an appeal from
the Tribunal.
The Full Court also held that the Tribunal had erred in law in concluding that payments made by
the taxpayers to associates were ordinary income within section 6-5 and in applying Division 7A.
The matter was remitted back to the Tribunal for decision in accordance with the correct law.
Application by the
Commissioner for
special leave to
appeal to the High
Court was dismissed.
03/07/15 Commissioner of Taxation [2015] Edmonds, Commissioner This was an appeal by the Commissioner from a decision of the Federal Court, dismissing the Decision Impact

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