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Decision Impact Statement

Aitken v C of T; Langford v C of T

Venue: Administrative Appeals Tribunal
Venue Reference No: QT2005/52; QT2007/15
Judge Name: SM McCabe
Judgment date: 10 February 2009
Appeals on foot:
No

Administrative Treatment (Implication on current Public Rulings and Determinations)

Relevant Rulings/Determinations:

Subject References:
Taxation
Assessable income
Dividends
Burden of proof

Précis

The Tax Office's response to these cases which concerned whether amounts paid to shareholders of a company, being the proceeds from the sale of company assets and paid to the shareholders by the purchaser, are dividends assessable under s. 44 ITAA 1936

Decision Outcome

Adverse

Brief Summary of Facts

The applicants were directors and shareholders of an Australian resident company which conducted timber logging operations in Papua New Guinea (PNG) from 1989 to 1995. Initially the company carried out operations on its own behalf, but by 1995 the company had ceased its own logging operations and its major activity was the management of the PNG logging operations of a second company of which it was a 40% shareholder.

In the 1995 financial year, the company terminated its management agreement with the second company and sold its 40% shareholding to a third party for approximately US$1.2 million, effectively ceasing its business operations in PNG.

Pursuant to the sale contract, the proceeds of the sale were to be paid directly to Mr Langford and Mr Aitken by way of their solicitor in Singapore. That is, the sale proceeds were to be paid to the shareholders rather than the company. The Tribunal found that the consideration was received by the applicants under an implied trust, with the funds in question being held and used by the applicants for the benefit of the company (to pay out accruing liabilities of the company, etc).

Issues decided by the Court or Tribunal

The Tribunal found that the receipts in question were the beneficial property of the company, rather than the applicants and were accordingly not dividends assessable under section 44 of the Income Tax Assessment Act 1936 .

Tax Office view of Decision

The Tribunal found the payments to the applicants were held by them on trust and used for the benefit of the company. This finding of fact was based on oral evidence which was neither supported by, nor inconsistent with, the documentary evidence. It was a finding of fact open on the evidence. The Tribunal's decision accordingly does not disclose an error of law.

Administrative Treatment

Implications on current Public Rulings & Determinations

Nil

Implications on Law Administration Practice Statements

Nil

Your comments

We invite you to advise us if you feel this decision has consequences we have not identified, or if a precedential decision such as a Public Ruling or an ATO ID requires reconsideration or amendment. Please forward your comments to the contact officer by the due date.

Date Issued:	4 August 2009
Due Date:	29 September 2009
Contact officer:	Grahame Tanna, Assistant Commissioner
Email address:	grahame.tanna@ato.gov.au
Telephone:	(02) 9374 2674
Facsimile:	(02) 9374 2002
Address:	Australian Taxation Office, 52 Goulburn Street, Sydney NSW 2000

Legislative References:
Income Tax Assessment Act 1936
Section 44