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ATO Releases – Rulings/determinations

Tax Telegraph, November 2012

ATO Releases – Rulings/determinations

Taxation determination (TD)
TD 2012/20

Income tax: provides an update of amounts that the Commissioner will accept as estimates of the value of goods taken from trading stock for private use by taxpayers in named industries

Decision Impact Statements (DIS)

Mount Pritchard & District Community Club Limited v Commissioner of Taxation

The ATO has released a Decision Impact Statement (DIS) on the Full Federal Court’s decision in Mount Pritchard & District Community Club Limited v Commissioner of Taxation [2011] FCAFC 129. In that case, the Full Federal Court held that the assessments issued by the Commissioner were not invalid even though the assessments were inconsistent with a Private Ruling issued to the taxpayer.

Instead, the Court found that whether or not the Commissioner was bound by the earlier Private Ruling was a factual assessment to be determined in a separate proceeding under Part IVC of the Taxation Administration Act 1953 (TAA 1953) before the AAT. The ATO is of the view that the decision supports the proposition that a review or appeal under Part IVC of the TAA 1953 is the proper avenue for a taxpayer seeking review of an income tax assessment on the basis that it is excessive. The ATO further notes that this decision will have no implications for any rulings or practice statements.

RCI Pty Limited v Commissioner of Taxation
A Decision Impact Statement(DIS) has been released by the ATO on the Full Federal Court’s decision in RCI Pty Limited v Commissioner of Taxation [2011] FCAFC 104 The Full Court held that the general anti-avoidance provisions of Part IVA of the ITAA 1936 did not apply to a scheme which reduced the taxpayer’s capital gain derived from the disposal of its shares in a US-related company.

The Full Court found that the taxpayer did not obtain the tax benefit alleged by the Commissioner to have been obtained in connection with the scheme.  In arriving at that conclusion, the Full Court held that if the scheme had not been entered into or carried out, it would be reasonably expected that the relevant parties would have abandoned the proposal, indefinitely deferred it or altered it so that it did not involve the relevant disposal of shares. The Full Court considered that it could not be reasonably expected that the parties would have proceeded to transfer the shares (the Commissioner’s counterfactual) given the tax cost of $172 million.  

According to the Full Court, the statutory question regarding what a taxpayer might reasonably be expected to have done if it had not entered into the scheme is a question for objective enquiry and determination based on the evidence before the Court, not a question of whether or not the Commissioner’s counterfactual is reasonable or unreasonable. The Commissioner’s application for special leave to appeal to the High Court was subsequently refused.

The DIS notes that in discharging the onus of establishing the counterfactual, the Commissioner will not automatically accept unsubstantiated assertions by taxpayers that a particular commercial transaction would not have been entered into if the tax benefit in question had not been available. According to the DIS, the onus of proof remains on the taxpayer to lead cogent evidence or compelling logic to make good such assertions. The ATO also notes that it may update PS LA 2005/24 (Application of the General Anti-Avoidance Rules), but will await the outcomes from the Assistant Treasurer’s announcement that amendments will be made to Part IVA of the ITAA 1936 (to apply to schemes entered into or carried out after 1 March 2012) to curtail the ability to argue the ‘do nothing’ counterfactual.

Commissioner of Taxation v Futuris Corporation Limited

A Decision Impact Statement has been released on the Full Federal Court’s decision in Commissioner of Taxation v Futuris Corporation Limited [2012] FCAFC 32. The Full Court held that Part IVA of the ITAA 1936 did not apply to a scheme that resulted in a capital gain made by the taxpayer from the sale of a subsidiary being reduced by approximately $83 million. The Full Court affirmed the decision at first instance that the taxpayer had not obtained a ‘tax benefit in connection with the scheme’.

The Full Court found that the primary judge did not err in accepting the expert evidence in determining what “might reasonably be expected to have been included in the assessable income of the taxpayer”.  According to the Full Court, the expert evidence was relevant and persuasive; it was not mere speculation, but a prediction based on facts, established market values, calculations based on unchallenged financial data, a stated goal and the application of expertise and experience.

The ATO notes that as this case turned on the weight given to the evidence lead in determining the counterfactual, the Full Court’s decision does not appear to have significant implications for other cases. In light of this decision, the ATO will be updating PS LA 2005/24.  Note that, as mentioned above, the Government has announced that it will introduce amending legislation, with effect from 1 March 2012, to amend the operation of the ‘tax benefit’ provisions of Part IVA of the ITAA 1936.

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