Test case funding program

Table 4.6 lists cases funded by the ATO under the Test Case Litigation Program, 2015–16. The Commissioner has released decision impact statements in a number of these cases.

More information about the program is available on ato.gov.au.

TABLE 4.6: Test case litigation, 2015–16

Case

Issue

Outcome, clarification obtained and status

Commissioner of Taxation v Desalination Technology Pty Ltd [2015] FCAFC 96

This was the Commissioner’s appeal to the Full Federal Court from a decision of the Federal Court [2014] FCA 1120.

The issue was whether the taxpayer ‘incurred’ research and development (R&D) expenditure for the purposes of subsection 73B(14) of the ITAA 1936 and, as such, whether they were entitled to claim an R&D offset, in circumstances where the taxpayer’s obligation to make the invoiced payment was subject to certain contingencies affecting the existence of that obligation.

The Full Federal Court allowed the Commissioner’s appeal on 3 July 2015.

The court found that the taxpayer was not entitled to an R&D tax offset because the invoiced amounts under the arrangement were not incurred by the taxpayer and were not payments definitively committed to by the taxpayer.

The decision confirmed the Commissioner’s view of the meaning of the word ‘incurred’ and affirmed earlier case law on the meaning.

The taxpayer sought but later discontinued a special leave application to the High Court.

Commissioner of Taxation v Devuba Pty Limited [2015] FCAFC 168

This was the Commissioner’s appeal from the decision of the AAT [2015] AATA 255.

The issue was whether the taxpayer satisfied the additional basic condition for shares in a company in paragraph 152-10(2)(b) of the Income Tax Assessment Act 1997 so as to enable access to the small business CGT concessions for the capital gain made on the sale of shares.

The Federal Court dismissed the Commissioner’s appeal on 30 November 2015.

The Federal Court found that since the taxpayer could not declare a dividend to the holder of a special class of share, the taxpayer had a ‘small business participation percentage’ of at least 90% entitling it to apply the small business CGT concessions.

The decision in the case did not expressly reject the Commissioner’s view expressed in Taxation Determination TD 2006/77 or confine the reasoning to the specific factual circumstances of the case.

Andrew Macoun v Commissioner of Taxation [2015] HCA 44

This was the taxpayer’s appeal to the High Court from a decision of the Full Federal Court [2014] FCAFC 162.

The issue was whether the taxpayer’s pension from the World Bank is exempt from tax under the IOPI Act.

The High Court dismissed the taxpayer’s appeal on 2 December 2015.

The High Court held unanimously that the taxpayer’s monthly pension payments were not exempt from tax. The basis for the decision was that the taxpayer had ceased to hold an office in the International Bank for Reconstruction and Development (IBRD) when the payments were received; the payments were not received from IBRD but from a retirement fund; and they could not be described as ‘salaries and emoluments’ under the IOPI Act.

The High Court’s decision clarified the scope of the Commissioner’s taxation powers and was consistent with the Commissioner’s practice.

Commissioner of Taxation v Australian Building Systems Pty Ltd (in liquidation); Commissioner of Taxation v Muller and Dunn as Liquidators of Australian Building Systems Pty Ltd (in liquidation) [2015] HCA 48

This was the Commissioner’s appeal from the decision of the Full Federal Court [2014] FCA 116.

The issue was whether the liquidators of the taxpayer, in the absence of an assessment, are required under section 254 of the ITAA 1936 to retain from the proceeds of a sale of land, sufficient money to pay any CGT arising from the sale.

The High Court dismissed the Commissioner’s appeal on 10 December 2015.

The Commissioner succeeded on two of the three grounds of appeal.

On the third ground, the High Court held that in the absence of an assessment, the liquidator was not required by section 254 of the ITAA 1936 to retain sufficient money to pay any CGT arising from the sale.

The High Court decision clarified and provided certainty on the tax obligations of liquidators.

Commissioner of Taxation of the Commonwealth of Australia v Haritos & Anor [2015] HCATrans 337

This was the Commissioner’s application for special leave to appeal to the High Court from a decision of the Full Federal Court [2015] FCAFC 92.

The issue was whether on appeal on a question of law, the Full Court erred in finding its jurisdiction capable of being invoked by a mixed question of fact and law.

The High Court refused the Commissioner’s special leave application on 11 December 2015.

The decision clarified the scope of an appeal to the Federal Court from a decision of the AAT under section 44 of the Administrative Appeals Tribunal Act 1975.

Commissioner of Taxation v Elecnet (Aust) Pty Ltd (Trustee) [2015] FCAFC 96

This was the Commissioner’s appeal from the decision of the Federal Court [2015] FCA 456.

The issue was whether the Electrical Industry Severance Scheme (EISS) was a unit trust for the purposes of Division 6C of Part III of the ITAA 1936.

The Full Court allowed the Commissioner’s appeal on 14 December 2015.

The court concluded that the definition of ‘unit trust’ is informed by Division 6C, according to the nature of a unit trust, and that the EISS is not a unit trust.

The taxpayer sought special leave to appeal to the High Court on 11 January 2016.

At 30 June 2016, the special leave application had not been heard.

Commissioner of Taxation of the Commonwealth of Australia v 4 Doonan Street Collinsville Pty Ltd (in liquidation) [2016] NSWCA 69

This was the Commissioner’s appeal from the decision of the Supreme Court of New South Wales [2015] NSWSC 437.

The issue was whether section 8AAZLA(2) of the TAA 1953 obliges the Commissioner to apply a credit amount only against a tax debt allocated to the same running balance account as the credit has been allocated.

The New South Wales Supreme Court, Court of Appeal allowed the appeal.

The Court of Appeal held that the Commissioner is entitled to apply credits arising from one type of account towards a debt on another account, until no debts remain and only then is any remaining credit refunded.

The decision provides certainty of the Commissioner’s interpretation and practice regarding his ability to apply credits towards tax debts.

Commissioner of Taxation v Kamal Jayasinghe [2016] FCAFC 79

This was the Commissioner’s appeal from the decision of the AAT [2015] AATA 456.

The issue was whether the taxpayer’s earnings from the UN Office of Project Services are exempt from tax under the IOPI Act.

The Full Federal Court dismissed the Commissioner’s appeal on 9 June 2016.

The court held that the taxpayer held ‘an office in’ the UN within the meaning of section 6 of the IOPI Act and therefore was exempt from tax. Additionally, TD 92/153 precluded the Commissioner from imposing any tax on the taxpayer.

At 30 June 2016, the Commissioner was considering whether to seek special leave to appeal to the High Court.