Birchstone Brief for the week ended 12 July 2024

ATO Updates

Class Rulings issued

The ATO has issued the following class rulings:

• CR 2024/40 – Silver Lake Resources Limited – Scrip for scrip roll-over;
• CR 2024/41 – Upper Yarra Community Enterprise Ltd – Off-market share buy-back;
• CR 2024/42 – Suncorp Group Limited – Suncorp Capital Notes 5; and
• CR 2024/43 – Technology Metals Australia Limited – Scrip for scrip roll-over.

Cases

Youssef Said Abdelbari v FCT [2024] AATA 1978 – Commissioner succeeds in another default assessment case

The AAT has affirmed?yet another objection decision concerning default assessments.

This time, the default assessments were?issued to a taxpayer who had emigrated to Australia from the UAE and received unexplained transfers from that country during the relevant income years.

In the absence of sufficient evidence, the Tribunal ultimately rejected the taxpayer’s contention that the relevant funds were loans and therefore not income, as well as the taxpayer’s alternative contention that the funds were gifts or would take on the character of gifts.

Appeals – Ierna Case

The Commissioner has appealed to the Full Federal Court against the decision of Justice Logan, reported at Ierna v FCT [2024] FCA 592 , which to our knowledge contained the first judicial consideration of the operation of section 45B of the ITAA 1936. ?

In that case, Justice Logan of the Federal Court had allowed the taxpayers’ appeal against amended assessments issued by the Commissioner which had included payments made under a corporate restructure as dividends (pursuant to section 45B) or, alternatively, as tax benefits arising under a scheme for the purposes of Part IVA. That corporate restructure had involved:

• a transfer of units in a unit trust (CBT) to a new company (Methuselah) in consideration for the issue of shares in that company;
• a selective share buy-back which effectively allowed a distribution of pre-CGT capital gains to the shareholders of Methuselah;
• assignment of debt interests arising from the share buy-back to bucket companies that had previously been used to cap the income tax payable on CBT’s income; and
• an election by Methuselah to form a tax consolidated group with CBT.

As Methuselah was a newly formed company with no accumulated profits and only a genuine share capital account, Justice Logan found that the payment to its shareholders was wholly “attributable to” (i.e. actually sourced or caused by) Methuselah’s share capital account. As such, section 45B had no application to the relevant “scheme” identified by the Commissioner.

Justice Logan also held that the Commissioner’s Part IVA contentions were ‘just not reasonable’, stating they ‘did violence to the evidence’. His Honour ultimately found that:

• none of the relevant taxpayers obtained a tax benefit in connection with the scheme; and
• although not necessary to decide, the dominant purpose of the scheme (objectively ascertained) was to use the pre-CGT units in the CBT to repay the Division 7A loans within the group. ?

Legislation

Better Financial Outcomes Bill now law

The Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (Cth) received royal assent on 9 July 2024 and is now law. This Bill was first covered in the Birchstone Brief for the weeks ended 29 March and 5 April 2024. ?

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