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Appendix 5: Strategic litigation

For the 2018–19 financial year, 74% of reported litigation outcomes under Part IVC of the Taxation Administration Act 1953 wholly supported the ATO’s position or assessments. This excludes cases funded by the ATO under the Test Case Litigation Program. Of the litigation decisions under Part IVC, 26% supported the taxpayer’s position in whole or in part.

The next table lists significant cases decided by the courts and Administrative Appeals Tribunal (AAT) in 2018–19. The main issues of each case are listed, as well as the outcome or status as at 30 June 2019. The significant cases reported are those with the potential for ongoing impact on the tax system.

Those marked with an asterisk (*) were funded by the ATO under the Test Case Litigation Program 2018–19. For more information about the test case funding program, see ato.gov.au/testcaselitigationprog.

The Commissioner has released decision impact statements in a number of these cases. These are available at ato.gov.au/decisionimpactstatements.

Significant cases, 2018–19

Matter

Issue

Outcome

Income tax cases – trusts

Federal Commissioner of Taxation v Thomas [2018] HCA 31

Whether the Commissioner was bound by an ex parte Supreme Court decision that a trustee could distribute franking credits separately from their related dividends.

The High Court upheld the Commissioner’s appeal, finding he was not bound and that franking credits could not be distributed separately from their related dividends.

Sandini Pty Ltd as trustee for the Karratha Rigging Unit Trust v Ellison v Commissioner of Taxation for the Commonwealth of Australia [2018] HCA Trans 190

Whether the taxpayer was entitled to rollover relief from capital gains tax (CGT) for the transfer of shares to his wife’s family trust, rather than directly to his wife as part of a court-ordered property settlement.

The taxpayer was refused special leave.

Trustee for the Michael Hayes Family Trust v Commissioner of Taxation [2019] FCA 426

Whether a related trust was a public trading trust and the taxpayer was not assessable on the trust income.

The related trust was a public unit trust.

The Commissioner has appealed the decision.

Watson as trustee for the Murrindindi Bushfire Class Action Settlement Fund v Commissioner of Taxation [2019] FCA 228

Whether the trustee was entitled to claim a deduction for his costs incurred as trustee against interest income earned on the settlement funds.

The costs of the trustee were not deductible against the fund’s interest income.

The trustee has appealed the decision.

Income tax cases – other

Commissioner of Taxation v BHP Billiton Ltd [2019] FCAFC 4

Whether the taxpayer was sufficiently influenced by associates and was liable to pay additional tax on tainted sales income under the controlled foreign corporation (CFC) rules.

The Full Court upheld the Commissioner’s appeal, finding the taxpayer was an associate and was sufficiently influenced such that it was subject to the CFC rules.

The High Court has granted BHP special leave to appeal the decision.

Commissioner of Taxation v Resource Capital Fund IV LP [2019] FCAFC 51

Whether it is the partnerships, or the partners individually, who are assessable for gains made on Australian share trading by Cayman Islands partnerships, and the application of tax treaty benefits to those gains.

The Full Court found that the taxpayers were assessable individually and were entitled to relief from tax under the double-tax treaty with the USA.

The taxpayers have applied for special leave to appeal the decision.

*Commissioner of Taxation v Sharpcan Pty Ltd [2018] FCAFC 163

Whether the taxpayer’s expenditure to purchase gaming machine entitlements is deductible as a revenue rather than capital expense.

The Full Court found that the expenses were deductible on revenue account.

The Commissioner has been granted special leave to appeal the decision.

EE&C Pty Ltd as trustee for the Tarcisio Cremasco Family Trust and Commissioner of Taxation [2018] AATA 4093

Whether the taxpayer was able to ‘reopen’ a settlement deed years later by lodging objections for the years that were the subject of the settlement.

The taxpayer waived any right it might otherwise have had to object to the relevant assessments by entering the settlement.

The taxpayer has appealed the decision.

Eichmann and Commissioner of Taxation [2019] AATA 162

Whether land used in storing business assets was an active asset enlivening CGT concessions.

The tribunal held the land was an active asset.

The Commissioner has appealed the decision.

*Harding v Commissioner of Taxation [2019] FCAFC 29

Whether the taxpayer was not a resident of Australia as living in temporary accommodation in Bahrain constituted a ‘permanent place of abode’ under the domicile test.

Place of abode refers to a country, not a taxpayer’s accommodation arrangements. The taxpayer was not a resident of Australia as Bahrain was his permanent place of abode.

The Commissioner has applied for special leave to appeal the decision.

Mingos v Commissioner of Taxation [2019] FCA 834

Whether the main residence exemption from CGT is available for a property held in a trust.

The taxpayer was not entitled to the exemption.

The taxpayer has appealed the decision.

Satyam Computer Services Limits v Commissioner of Taxation [2018] FCAFC 172

Whether payments received by the applicant from its Australian clients are assessable, where they are royalties for the purposes of the tax treaty, but not under Australian domestic tax law.

The Full Court found the payments were Australian sourced and assessable income.

The taxpayer has been refused special leave to appeal the decision.

Victoria Power Networks Pty Ltd v Commissioner of Taxation [2019] FCA 77

Whether the taxpayer was assessable on customer contributions towards power connections, and on the construction value of transferred assets.

The Federal Court upheld the Commissioner’s decision.

The taxpayer has appealed the decision.

Taxation administration cases

Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation [2018] FCAFC 122

Whether a property purchased by a self-managed super fund through a managed investment scheme was an in-house asset.

The Full Federal Court found the investment breached the in-house asset rule but not the sole purpose test.

BlueScope Steel (AIS) Pty Ltd v The Australian Workers' Union [2019] FCAFC 84

The Commissioner intervened in this proceeding on the issue of the meaning of ‘ordinary times earnings’ for superannuation purposes, which is expressed in Superannuation Guarantee Ruling SGR 2009/2.

The Full Court agreed with the Commissioner’s construction of ‘ordinary times earnings’.

Commissioner of Taxation v ACN 154 520 199 Pty Ltd (in liq) (formerly EBS & Associates Pty Ltd) [2018] FCA 1140

Whether the Tribunal was able to direct that the Commissioner produce copies of his internal legal advices in relation to the taxpayer.

The Federal Court found it was not open to the Tribunal to direct the Commissioner to produce his legal advices.

*Commissioner of Taxation v Tomaras [2018] HCA 62

Whether, in matrimonial property proceedings, the Family Court has the power under section 90AE of the Family Law Act 1975 to order that one spouse be substituted as taxpayer for the tax liability of the other spouse.

The High Court allowed the appeal, finding the Family Court could make an order under section 90AE for a tax liability, but said it would only seldom, if ever, be appropriate for such an order to be made.

*Comptroller General of Customs v Zappia [2018] HCA 54

Whether an employed manager of a bonded warehouse is liable to a penalty for a failure to safely keep dutiable goods in his possession or control.

The High Court found an employed manager can be liable to the penalty.

Deputy Commissioner of Taxation v Buzadzic [2019] VSC 141

Whether the conclusive evidence provisions prevent a Supreme Court from looking behind an assessment in recovery proceedings.

The Supreme Court of Victoria declined to grant summary judgment on the basis that it was a matter for trial whether the court was entitled to look behind the assessment, despite the reliance on conclusive evidence.

The Commissioner has appealed the decision.

Fyna Projects Pty Ltd v Deputy Commissioner of Taxation [2018] FCA 2041

Whether failure to comply with a garnishee notice gives rise to a tax-related liability which can be the subject of a further garnishee notice.

The Federal Court found that the pecuniary penalty for non-compliance with a garnishee notice is not itself a tax-related liability that can ground a further garnishee notice.

Iannuzzi v Commissioner of Taxation [2019] FCAFC 39

Whether Mr Iannuzzi, a liquidator, should have leave to appeal the interlocutory decision that the Commissioner could use documents obtained through information gathering powers in its action for an inquiry into the conduct of the liquidator.

The Full Court refused to grant leave to appeal.

Linfox Australia Pty Ltd and Commissioner of Taxation [2019] AATA 222

Whether fuel used to run cabin air conditioning and to travel on toll roads is fuel used for ‘travelling on a public road’ for fuel tax purposes; and if so, whether Linfox was out of time to apply for fuel tax credits.

The Administrative Appeals Tribunal found that the fuel was used for travelling on a public road, but found that if Linfox had succeeded it would not have been out of time to apply for a fuel tax credit.

Linfox has appealed the decision, and the Commissioner has filed a notice of contention on the time limit issue.

Pintarich v Commissioner of Taxation [2018] HCASL 322

Whether the taxpayer should be granted special leave to argue that a payment arrangement letter constituted a deemed decision to remit general interest charges.

The taxpayer was refused special leave.

*Racing Queensland Board v Commissioner of Taxation [2019] FCA 509

Whether the Board is liable to pay superannuation guarantee shortfalls relating to riding fees paid to jockeys who rode in its races.

The Federal Court found that the Board is not liable to pay superannuation for the jockeys.

The Commissioner has appealed the decision.

*Scone Race Club Ltd v Commissioner of Taxation [2019] FCA 976

Whether the Club is liable to pay superannuation guarantee shortfalls relating to riding fees paid to jockeys who rode in its races.

The Federal Court found that the club is not liable to pay superannuation for the jockeys.

The Commissioner has appealed the decision.

The Bell Group Limited v Australian Securities and Investments Commission (No 2) [2018] FCA 1970

Whether deregistered companies should be retrospectively reinstated to enable them to form part of a tax consolidated group so related entities could obtain a tax benefit.

The Federal Court ordered the companies be retrospectively reinstated.

The Commissioner has appealed the decision.

Travelex Limited v Commissioner of Taxation [2018] FCA 1051

Whether delayed refund interest is payable from the date of the original or amended activity statement.

Interest is payable from the original activity statement lodgment, as there is no legislative entitlement to amend an activity statement.

The Commissioner has appealed the decision.