Birchstone Insights
Raftland Pty Ltd as trustee of the Raftland Trust v FCT [2008] HCA 21
To cap off our section 100A journey, this week we consider the decision in Raftland Pty Ltd as trustee of the Raftland Trust v FCT [2008] HCA 21.
This matter involved a complex series of trust distributions which can be summarised as follows:
- The Raftland Trust (Trust) was established in 1995 with the E & M Unit Trust (Loss Trust) as the default beneficiary. Raftland Pty Ltd was the trustee and was controlled by the Heran brothers.
- The Loss Trust was unrelated to the Trust and the Heran brothers.
- The Trust made an income distribution of $250,000 to the Loss Trust, which had accumulated losses of approximately $4 million, to effectively purchase control of the Loss Trust. Raftland Pty was subsequently appointed as trustee for the Loss Trust.
- Over the following three years, the Trust made significant income distributions (largely consisting of income that other entities in the family group had made the Trust presently entitled to) to the Loss Trust to utilise the prior year tax losses. Aside from the $250,000 income distribution for control of the Loss Trust, none of these income distributions were actually paid from the Trust to the Loss Trust. The income was largely retained by the Trust and other entities within the family group.
The High Court reasoned that the income distributions from the Trust to the Loss Trust were shams because there was never an intention for these distributions to be legally effective. Rather, the High Court held that there was only ever an intention to make a distribution of $250,000 to the Loss Trust, which was the price to effectively purchase control of the Loss Trust. On this basis, the Heran brothers became presently entitled to these amounts as the default beneficiaries.
Although the High Court regarded the distributions as a sham, they held that section 100A still applied. In following the reasoning of Kiefel J in the first instance, the High Court held that section 100A applied because the entitlements of the default beneficiaries (the Heran Brothers) came about because the appointment of income was invalid. The High Court essentially applied a ‘but for’ test – but for the existence of the agreements the appointments would not have been made.
Based upon the reasoning of the High Court above, it is arguable that if the beneficiaries would have received the distributions regardless of the agreement, then section 100A would not apply.
ATO Update
Product Ruling
The ATO has issued Product Ruling PR 2021/9 – Income tax and fringe benefits tax: Tax consequences for subscribers under a Motopool Subscription Agreement.
ATO Guidance: COVID-19 government grants and payments
The ATO has released guidance on whether expenses incurred by businesses that are receiving COVID-19 government grants and payments are deductible.
Cases
FCT v Burswood Nominees Ltd as trustee for Burswood Property Trust [2021] FCAFC 151 – Commissioner’s appeal allowed
The Full Federal Court has held that amounts paid by taxpayer casinos to junket tour operators or vice versa should not be included in calculating the global GST amount under Division 126 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act), as they were not consideration for or in connection with gambling supplies or monetary prizes.
The taxpayer owned and operated various casinos which entered into agreements with junket tour operators (and their agents) to facilitate gambling at their casinos, which included the provision of credit and the cashing of chips. These agreements were exclusively between the casinos and the junket tour operators. At the conclusion of a ‘junket tour’, commissions were payable by the casinos to the junket tour operators, and rebates were payable by the junket tour operators to the casinos or vice versa. For the periods in question, the taxpayer lodged business activity statements that took into account overall turnover commission and the net rebate amount for the purposes of calculating their total GST amount. The Commissioner issued assessments excluding these amounts on the basis that they were not consideration for or in connection with gambling supplies or monetary prizes.
The Full Federal Court allowed the Commissioner’s appeal from the first instance decision, and held that the commissions and rebates were not part of the ‘total monetary prizes’ or ‘total amounts wagered’ under section 126-10 of the GST Act. As a result, these amounts could not be included in calculating the total GST amount under Division 126 of the GST Act. The Court relied on the contract between the casino and junket tour operators, which stated that the commission was for marketing and similar purposes, to say that the commission amounts did not form part of ‘total monetary prizes’ and were instead referable to the commercial relationship. Similarly, the Court the stated that the rebates were not part of the ‘total amount wagered’ as they related to the commercial arrangement rather than being in connection with a gambling supply.
Legislation
Bill introduced into Parliament: Self-education expenses
A new Bill has been introduced into Parliament which amends section 82A of the Income Tax Assessment Act 1936 (Cth) to remove the $250 non-deductible threshold for claiming work-related self-education expenses.
Bill introduced into Parliament: Paid parental leave
A new Bill has been introduced into Parliament which makes changes to the Paid Parental Leave scheme.
Declaration made: NSW and Vic business grants
A Declaration has been made to treat certain NSW and Victorian business grants as eligible programs which means that these payments will be regarded as non-assessable non-exempt income.
