Decision Impact Statement
Russell v Commissioner of Taxation
 FCAFC 10
2011 ATC 20-240
(2011) 79 ATR 315
Venue: Full Federal Court
Venue Reference No: QUD 008/10
Judge Name: Dowsett, Edmonds & Gordon JJ
Judgment date: 4 February 2011
Appeal: The High Court refused an application for special leave to appeal by the taxpayer on 10 February 2012 -  HCATrans 21.
Decision Outcome: Partly adverse
Administrative Treatment (Implication on current Public Rulings and Determinations)
TR 2001/7 - Income Tax: the meaning of personal services incomeTR 97/11 - Income Tax: am I carrying on a business of primary production?MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number
Personal services income
New Zealand Agreement
Carrying on an enterprise
Meaning of 'creditable acquisition'
Outlines the ATO's response to this case that concerns, first, whether an overseas registered company is a 'personal services entity' and if payments to it are the taxpayer's assessable income. Secondly, whether a partnership carried on enterprises and is entitled to input tax credits.
Brief Summary of Facts
Income Tax - Individual taxpayer
1. The taxpayer applied for a position as an office manager with an Australian company.
2. A contract for the taxpayer's full time services was entered into between the Australian company and a New Zealand company, whose sole shareholder was the taxpayer's wife.
3. The Australian company made all payments for the taxpayer's services (less an amount for GST) to the New Zealand company.
4. The taxpayer claims not to have received salary or wages from the New Zealand company and only returned partnership distributions as income (amounts equal to the GST).
5. The taxpayer was assessed for personal services income (PSI) for the monies paid by the Australian company.
6. The Full Court found that these amounts constituted the taxpayer's PSI.
GST - Partnership
1. The taxpayer and his wife, as a partnership, purported to carry on a number of enterprises - accountancy practice, forestry activity and naturist retreat.
2. The Commissioner considered the partnership was not carrying on any enterprises and disallowed GST credits as being private expenses.
3. The primary judge found that the partnership was carrying on a forestry activity enterprise but not an accountancy practice or naturist retreat enterprise.
4. The Full Court found that the partnership was carrying on a naturist retreat enterprise but not an accountancy practice.
Issues decided by the Full Federal Court
1. Court unanimously dismissed the individual's appeal. The ITAA 1997 does not purport to tax profits of a New Zealand company but taxes part of its income as the personal services income of the individual. Pursuant to the ITAA 1997 the taxpayer's personal services income would be excluded from the New Zealand company's assessable income and therefore, its taxable income, as it was not part of its profits and therefore not taxation of the profits of the New Zealand company's enterprise.
2. On the issue of whether there are partnership input tax credits for expenses in relation to the accountancy practice enterprise and the naturist retreat enterprise, the Court held that the partnership:
- was not carrying on an accountancy practice and was not entitled to input tax credits (unanimously).
- was carrying on the enterprise of naturist retreat and was entitled to input tax credits (by majority)
ATO view of Decision
The ITAA 1997 does not bring to tax the profits of a New Zealand company but taxes, as statutory income, the personal services income of the individual. The facts of this case were unusual and it is not expected a factual scenario of like kind will often arise.
It was open on the facts to find that the partnership was carrying on a forestry enterprise and naturist retreat enterprise.
Implications for ATO precedential documents (Public Rulings & Determinations etc)
Implications for Law Administration Practice Statements
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:
||2 July 2012
| Due Date:
|| 27 August 2012
| Contact officer:
| Email address:
||(02) 9374 8173
||(02) 9374 8628
||ATO, Latitude East, 52 Goulburn Street, Sydney, NSW, 2000
Income Tax Assessment Act 1997 ("ITAA 1997")
A New Tax System (Goods and Services Tax) Act 1999
International Tax Agreements Act 1953
Schedule 4 : NZ Agreement
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