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Test case litigation register

Attention This document has changed over time. View its history.

as at 6 December 2017

INFORMATION

The Test Case Litigation Register (the Register) contains information about:

  • Cases approved for test case funding and their impact and status.
  • Cases declined for test case funding and the reasons why.
  • A list of all test case funded matters and their outcomes.

The Register is published after each Panel meeting takes place where applications are considered for funding.

Test Case Panel meeting dates and closing application dates

  • 6 March 2018 meeting: closing date for applications is 13 February 2018
  • 8 May 2018 meeting: closing date for applications is 17 April 2018
  • 17 July 2018 meeting: closing date for applications is 26 June 2018
  • 26 September 2018 meeting: closing date for applications is 4 September 2018

For queries related to the Test Case Litigation Register or the Test Case Litigation Program more generally please contact:

APPROVED MATTERS IN PROGRESS

ATO reference: Tomaras & Tomaras and Anor and Commissioner of Taxation [2017] FamCAFC 216
VenueHigh Court of Australia
IssueThe issues raised are:
  1. The scope of the presumption that the Crown is not bound by a statute and in particular:
    1. Whether, as held by the Full Family Court in the context of construing section 90AE of the Family Law Act (FL Act), the presumption that members, servants and agents of the executive government, and property held by it or on its behalf, are not bound by general words in a statute "applies only to provisions which impose an obligation or restraint on the Crown";

      or alternatively,
    2. As contended by the Commissioner the presumption is engaged in all circumstances where a statute regulates the conduct or rights of persons, or regulates the use of property, and those regulated persons or property could include the executive property owned by or on its behalf.


Assuming there was a presumption that the Crown was not bound by section 90AE of the FLA, whether that presumption was rebutted.
Why does the issue involve uncertainty and/or contention?The case concerns the proper scope of operation of section 90AE of the FL Act and specifically whether the section empowers the court to make orders as part of a property settlement requiring the Commissioner to substitute for one person who has a tax liability owed to the Commonwealth another person.

This matter raises fundamental questions concerning the proper construction of section 90AE of the FL Act against the background of the tax statutes constituting a code the scheme of which confines the liability of pay income tax to persons who are assessed under the tax law who then in turn are person upon whom the tax laws confers the rights of objection, review and appeal.

The Commissioner will contend that the operation of the tax acts would be rendered highly problematic if a substitution order under section 90AE of the FL Act could be made against the Commissioner or the Commonwealth in respect of tax-related liabilities.
Impact on other taxpayers and mitigation strategiesThis case is of fundamental public importance as it affects the imposition and recovery of taxation and the exercise by a taxpayer of objection, review and appeal rights.

The uncertainty regarding the proper scope of operation of section 90AE of the FL Act is a longstanding issue that has been arisen in a number of past family law matters but the present matter is the first time the issue has received appellate consideration.

Whilst this case concerns the rights of the Commissioner as they relate to the taxation liabilities of parties to a marriage, the determination of this case may also have bearing on the extent to which section 90AE of the FL Act can impact on other debts owed to the Commonwealth e.g. in a social security context.
StatusThe Commissioner filed an application for special leave on 10 November 2017.
ATO reference: 004/2017-18 and 005/2017-18
VenueFederal Court of Australia
IssueWhether the taxpayers are liable to make payments to jockeys where the payments are made pursuant to paragraph 12(8)(a) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) (Cth) and as such, the taxpayers would be considered to be the employers of those jockeys for superannuation guarantee purposes?
Why does the issue involve uncertainty and/or contention?It is not clear from the remuneration practices in place in the industry as to who is the employer of the persons covered by paragraph 12(8)(a) of the SGAA.
Impact on other taxpayers and mitigation strategiesIt is anticipated that this issue is limited to the particular industry.
StatusAn appeals for both matters have been filed with the Federal Court.
ATO reference: Comptroller-General of Customs v Zappia, section 252/ 2017
VenueHigh Court of Australia
IssueWhether an employee of a licensed warehouse is capable of having, or being entrusted with, the possession, custody or control of dutiable goods under section 35A of the Customs Act 1901 (Cth) (Customs Act).
Why does the issue involve uncertainty and/or contention?The Full Court of the Federal Court of Australia determined that a whole class of persons, being employees, are excluded from the ambit of s35A of the Customs Act. The interpretation is inconsistent with the manner in which section 35A of the Customs Act has previously been administered.
Impact on other taxpayers and mitigation strategiesThe decision could give rise to a number of adverse administrative consequences, including:
  • There may be a number of demands which have issued that might arguably be invalid;
  • It may be difficult to argue that section 35A can ever be construed as applying to an employee;
  • The decision may have implications for directors who are officers of a corporation; and
  • A narrowing of the class of persons which demands can be issued to may impact the ability to protect revenue. Specifically, it limits the Commissioner's ability to mitigate the risks associated with phoenixing practices.


Also, section 60 of the Excise Act 1901 (Cth) is an equivalent provision to section 35A of the Customs Act, so the same consequences may arise in Excise cases.
StatusThe Commissioner filed an application for special leave on 17 October 2017.
ATO reference: 002/2017-18
VenueAdministrative Appeals Tribunal
IssueThe dispute concerns:
  1. Whether a invalidity pension that commenced being paid prior to 20 September 2007, under the rules of a Commonwealth Government military superannuation scheme, is:
    1. a superannuation income stream as defined in section 307-70 of the Income Tax Assessment Act 1997 (ITAA 1997) and sub-regulation 995-1.01(1) of the Income Tax Assessment Regulations 1997 (ITAR 1997) such that the pension payments are superannuation income stream benefits, or;
    2. not a superannuation income stream meaning that the payments are superannuation lump sums as defined in section 307-65 of the ITAA 1997.
  2. Whether a invalidity pension that commenced being paid after 19 September 2007, under the rules of a Commonwealth Government military superannuation scheme, is:
    1. a superannuation income stream as defined in section 307-70 of the Income Tax Assessment Act 1997 (ITAA 1997) and subregulation 995-1.01(1) of the Income Tax Assessment Regulations 1997 (ITAR 1997) such that the pension payments are superannuation income stream benefits; or
    2. not a superannuation income stream meaning that the payments are superannuation lump sums as defined in section 307-65 of the ITAA 1997.
Why does the issue involve uncertainty and/or contention?There is little in the way of existing case law providing legal guidance on whether or not military superannuation invalidity payments are superannuation income streams or superannuation lump sums under the ITAA 1997 and ITAR 1997 following amendments that were made with effect from 1 July 2007.

The Commissioner considers the invalidity pensions are superannuation income streams. The taxpayers consider their pension payments should be taxed as superannuation lump sums.
Impact on other taxpayers and mitigation strategiesA Tribunal decision on these issues will provide guidance to other ex-ADF members in similar situations as to how their invalidity pensions payable from a Commonwealth military superannuation scheme should be properly taxed. There have been a number of requests for Private Rulings on this issue. In the event the invalidity pensions are not found to be superannuation income streams the pension payments will be taxable as superannuation lump sums.
StatusIssues 1. and 2. involve different taxpayers.

The issues are awaiting a hearing date.
ATO reference: 003/2017-18
VenueFederal Court of Australia
IssueWhether in each of the 2011 and 2012 Income Years the taxpayer is only entitled under section 770-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to claim, as a Foreign Income Tax Offset, the amount of foreign income tax paid in respect of an amount that was included in their assessable income.
Why does the issue involve uncertainty and/or contention?The ATO view on the application of the FITO provisions (as set out in Division 770 of the ITAA 1997) is set out clearly in ATO ID 2010/175. However the outcome of the litigation can be expected to provide case law authority on the operation of the FITO provisions, and in particular that the FITO is limited to the amount of foreign income tax paid 'in respect of an amount that is all or part of an amount' which is included in a taxpayer's assessable income (the Commissioners 'apportionment approach').

The contracts in this matter to dispose the relevant foreign CGT assets were executed before ATO ID 2010/175 was published, the taxpayer lodged their income tax returns for the income years ended 30 June 2011 and 2012 after this ATO view was published.

There are no existing precedents and this area of law is unclear and has not been tested.
Impact on other taxpayers and mitigation strategiesThe number of taxpayers affected by the decision is limited to the number of taxpayer's claiming FITO. The current application relates to the income years ended 30 June 2011 and 2012. 3,129,131 taxpayers have claimed FITO from 2011 to 2015.
StatusThe matter is awaiting a hearing date.
ATO reference: 001/2015
VenuePre-litigation
IssueWhether the anti-avoidance rules contained in Pt IVA of the Income Tax Assessment Act 1936 (Cth) (Part IVA) applies to the alienation of income from the provision of personal services. Specifically, whether and to what extent Part IVA places limits on the ability of the taxpayer in providing professional services through an interposed entity to distribute that income from those services to other entities.
Why does the issue involve uncertainty and/or contention?The Commissioner's views on the incorporation of medical practices are set out in various Rulings, which set out factors to be considered in determining whether a taxpayer derives income from personal services: the nature of the taxpayer's activities, the extent to which the income depends on the taxpayer's skill and judgement, the extent of income producing assets used to derive the income and the number of employees and others engaged.

The uncertainty in relation to the arrangement in this case includes what may be regarded as 'arm's length remuneration' for the personal services conducted by the taxpayer on behalf of the Trust, and whether the income of the Trust can be said to be derived from a business structure
Impact on other taxpayers and mitigation strategiesThe matter concerns the application of Part IVA to arrangements where the services of an individual are provided through an entity rather than directly by the individual. As it is increasingly common for professional medical practices to be carried on through company or trust structures, it has potential significance for the wider medical industry, in particular smaller practices using a simple company/trust structure.
StatusThis matter is progressing through pre-litigation.

DECLINED MATTERS

ATO reference: 007/2017-18
Panel Meeting Date4 October 2017
Issue
  1. Where the Commissioner identifies in a private ruling application that there are relevant facts relating to future events which have not been included in the scheme identified in the private ruling application, are the missing facts information that the Commissioner is obliged to request from the taxpayer?
  2. Are the missing facts assumptions about future events upon which the Commissioner could exercise his discretion to decline to issue a private ruling?
Panel reasonsThe Panel observed that the narrowness of the scenario in this case and the uncertainty whether it involves a potential Part IVA issue meant there was less likelihood that it would be of great value and application, and so not sufficient to warrant funding.
ATO reference: 006/2017-18
Panel Meeting Date22 September 2017
Issue
  1. Whether under the Renewable Remote Power Generation Program (RRPGP), a RRPGP grant to the Applicant is an assessable recoupment under:
    1. Section 20-20(2) of the ITAA 1997; or
    2. Section 20-20(3) of the ITAA 1997.
Panel reasonsThe Panel observed that the uncertainty about how the law operates in relation to the provisions was addressed in the hearing before the Federal Court at first hearing. The panel did not consider that there were any remaining issues of uncertainty, nor did the Applicant's grounds of appeal raise any new arguments or issues which would cast uncertainty on the operation of the law to the facts.
ATO reference: 001/2017-18
Panel Meeting Date19 July 2017
IssueThe issues:
  1. Whether a superannuation fund leasing a residential property to a related party of the Applicant that has invested in units issued by the superannuation fund, of which the residential property is the underlying asset, would not cause the Applicant to invest in an "in-house asset" within the meaning of section 71 of the Superannuation Industry (Supervision) Act 1993 (SISA);
  2. Further or alternatively to 1., the investment by the Applicant in question is not an investment in a "related trust" for the purposes of section 71 of the SISA;
  3. The leasing of a residential property by the superannuation fund to the daughter of a member of the Applicant that has invested in the superannuation fund will not cause the Applicant in question to breach the sole purpose test in section62 of the SISA by reason that the member's daughter is a related party of the Applicant.
Panel reasonsThe Panel observed that in this matter the Applicant seeks the endorsement of an investment strategy that deals with a unique trust and an exclusive set of circumstances. As such, the Panel took the view that the matter is limited to the application of the SISA to the particular facts of the trust and that the matter it is unlikely to be capable of direct application to other self-managed superannuation funds

The Panel agreed that the matter would not provide certainty to a substantial section of the public on the operation of the law.
ATO reference: 002/2017
Panel Meeting Date9 May 2017
IssueWhether a company can be considered a party to a composite transaction under section 588FA of the Corporations Act 2001 within the scope outlined in Macks and Emanuel (no. 14) Pty Ltd v Blacklaw & Shadforth Pty Ltd (1997) 15 ACLC 1,099, for the purpose of impugning a payment as an unfair preference payment pursuant to s588FF of that Act, where:
  1. The relevant payment was made by a director from his/her own account to satisfy a director penalty liability against him/her (i.e. to satisfy the Commissioner as the director's own creditor), and
  2. For the purposes of establishing a transaction between the company and the Commissioner of taxation under section 588FA of the Corporations Act 2001, the liquidator relies on:
    1. evidence that the director transferred company funds equal or greater to that payment amount to his personal account before making the payment to the Commissioner against his director penalty liability, and
    2. the operation of section 269-40 of Schedule 1 of the Taxation Administration Act 1953 such that a payment of a director penalty liability equally discharges a respective superannuation guarantee charge or company income tax withholding liability underlying that director penalty liability.
Panel reasonsThe Panel observed that the primary concern is the relationship between the company and the director. The nature of this arrangement and its affect is a matter of commercial law rather than tax law.

The Panel observed that precedential value of the case would be quite limited and would not affect a large number of taxpayers or a significant section of the community.
ATO reference: 003/2017
Panel Meeting Date9 May 2017
IssueThe applicant is redeveloping a property by subdividing existing land into townhouse 'A, 'B', 'C' and 'D'. The taxpayer looks to retain townhouse 'A' as their main residence, townhouse 'B' as an investment property and sell townhouses 'C' and 'D'. Therefore, the Test Case Funding application raised the following issues.

Whether:
  1. Proceeds from the sale of townhouses would be income or capital in nature.
  2. The sales of the townhouses are supplies made in the course or furtherance of an enterprise that the Applicant carries on such that GST will apply to the sale.
Panel reasonsThe Panel observed that there is substantial body of existing case law around whether monies received would assessable as income.

For both income tax and GST issues, the Panel also observed that the case would turn on its specific facts and would be very unlikely to set precedence due to the factual differences that would exist between cases and their application. Therefore, there is little to be gained by the Commissioner or the community as a result of a case.
ATO reference: 004/2017
Panel Meeting Date9 May 2017
Issue1. Is the partnership entitled to input tax credits in relation to creditable acquisitions in their Business Activity Statement for the period ended 31 March 2013 pursuant to section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2. Has the partnership changed the application for which the new residential properties were initially intended and are adjustments required to reflect the change in creditable purpose in relation to section 129 of the GST Act?

3. Is the supply by an associated entity of residential rental an input taxed supply in accordance with section 40-35(1) of the GST Act?
Panel reasonsThe Panel observed that the application does not identify any legal issue where there is some doubt or that the case has precedential value.

The Panel observed that any points of contention would more likely turn on its particular facts and is unlikely to set any precedent as the law is clearly set out.
ATO reference: 001/2017
Panel Meeting Date7 March 2017
IssueThe issue in this case is whether an assessment under section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) can be maintained after a trustee subsequently lodges a trust tax return and identifies presently entitled beneficiaries. The circumstances of the case were as follows:
  1. As a result of an audit without notice, a section 254 assessment was raised against the trustee prior to the end of the 2015-16 income year.
  2. At objection, the taxpayer provided a trust tax return setting out presently entitled beneficiaries along with the other relevant trust documents.
  3. The objection decision was to slightly reduce the section 254 assessment in terms of some income items but the assessment otherwise stood.
Panel reasonsThe Panel observed that the test case funding application asserts that the ATO considers an assessment under section 254 prevents the taxpayer from objecting against the assessment. The panel noted that is not the Commissioner's position.

The Panel also observed that the test case funding application raises an issue that is not in the notice of appeal, namely, the fact that the beneficiaries were assessed on the same income means that the trustee cannot be assessed under section 254. However, it was observed that the High Court has accepted the contrary view in Commissioner of Taxation -v-Australian Building Systems Pty Ltd (in liq) [2015] HCA 48. The purpose of the provision was described in that case as being to provide an assurance that the liability of the beneficiaries would be met.

This has the effect that the present case will not establish a precedent but will involve the application of established law to the facts of the particular case.
ATO reference: 005/2017
Panel Meeting Date11 January 2017
IssueThe issue in this case is whether the salary and wages received by the Applicant from the Department of Foreign Affairs and Trade ('DFAT'), when posted to Vietnam in the year ended 30 June 2015, is exempt foreign employment income under section 23AG of the Income Tax Assessment Act 1936 ('ITAA 1936').

Panel reasonsThe Panel observed that the matter does not involve issues where there is uncertainty or contention about how the tax law operates. The panel added:
  1. There is no precedential value in going forward with this matter,
  2. There is nothing compelling about the matter, and
  3. The matter is narrow and factually based.


The Panel noted that the case is factually specific to the taxpayer and is not likely to affect a substantial section of the public.

The Panel considered that the operation of the law was well established and clear in this area and therefore the case would not provide legal precedent and would not be in the public interest to be litigated.
Name: WTPG v Commissioner of Taxation [2016] AATA 971
Panel Meeting Date11 January 2017
Issue1. Whether travel expenses incurred by a taxpayer with a disability in the context of their employment are deductible in the 2014 year under section 8-1 of Income Tax Assessment Act 1997? (Cth) (ITAA 1997), in particular:
  1. Were the Travel Expenses incurred in gaining or producing the taxpayer's assessable income under section 8-1 of ITAA 1997?
  2. Were the Travel Expenses a loss or outgoing of a private or domestic nature so that they may not be deducted as a result of the application of section 8-1(2)(b) of ITAA 1997?


2. Does section 26-30 of ITAA 1997 operate to deny the taxpayer a deduction for the Travel Expenses in the 2014 year?
Panel reasonsThe Panel observed:
  • There is sufficient case law clarification on the private/domestic aspects of section 8-1 ITAA 1997: Commissioner of Taxation v Cooper (1991) 29 FCR 177; 99 ALR 703; 91 ATC 4396; 21 ATR 1616, and Lunney v Federal Commissioner of Taxation [1958] HCA 5; (1958) 100 CLR 478. Those principles are well-settled and it is unlikely they will be disturbed by the proposed appeal.
  • The disability aspects of the matter, particularly the argument that there is a conflict between disability legislation and tax legislation, could impact on a large number of taxpayers if accepted;
  • That aspect of the matter is of relevance and compelling, however, there is doubt that the matter would get a practical outcome by ventilating the issues;
  • It is difficult to see what is the error of law in the Tribunal's approach to the interpretation of the relevant provisions in absence of proposed appeal statement;
  • The applicant has difficulty in overcoming the wording in section 26-30 where there is no uncertainty about how that law applies;
  • The applicant also has difficulty in showing the outgoing was '...incurred in gaining or producing... [his] assessable income' as required by section 8-1(1) ITAA 1997;
  • The issue that the applicant presses, that the law applies in an unreasonable or discriminatory way, is more appropriately addressed by law change.
ATO reference: 002/2016
Panel Meeting Date29 November 2016
Issue1. Whether a lump sum payment received by the taxpayer pursuant to a Services and Licence Agreement with a medical services provider is income or capital in nature?

2. If all or part of the lump sum is capital in nature, whether the taxpayer is eligible for the small business concessions under Division 152 of the Income Tax Assessment Act 1997?
Panel reasonsThe Panel observed that the characterisation of the lump sum payment as being on either capital or revenue account will turn on the facts of the case rather than on issues of legal principle and therefore a decision in this case would not resolve any uncertainty in the law or provide a broader legal precedent.
ATO reference: 001/2016
Panel Meeting Date28 September 2016
IssueWhether the Electrical Industry Severance Scheme (EIIS) was a unit trust for the purposes of Division 6C of Part III of the Income Tax Assessment Act 1936 (Cth)?
Panel reasonsThe Panel considered that the decision of the Full Federal Court provided sufficient legal precedent for a significant section of the public.

FINALISED APPROVED MATTERS

Name: Tomaras & Tomaras and Anor and Commissioner of Taxation [2017] FamCAFC 216
VenueFull Court of the Family Court of Australia
IssueWhether section 90AE of the Family Law Act 1975 (Cth) (FLA) enables the Family Court of Australia and the Federal Circuit Court to make an order substituting one party to a marriage for the other party in relation to a taxation debt.
Decision or outcomeThe question was posed in a case stated to the Full Family Court.

The Full Court decided the question in the affirmative.

In particular, the Full Court found that there is no place for the presumption that statutory provisions in general terms do not bind the Crown if the provision properly construed confers a benefit on the Crown.
Why did the issue involve uncertainty and/or contention?This case concerned the proper scope of operation of section 90AE of the FL Act and specifically whether the section empowers the court to make orders as part of a property settlement requiring the Commissioner to substitute for one person who has a tax liability owed to the Commonwealth another person.
StatusThe decision was handed down on 13 October 2017.

The Commissioner filed an application special leave to the High Court on 10 November 2017.
Name: Commissioner of Taxation v Primary Health Care NSD613/2017
VenueFederal Court of Australia
Issue
  1. Whether the Tribunal erred in law in the exercise of its discretion in section 14ZX(1) of the Taxation Administration Act 1953 (Cth) (Administration Act) to treat an objection lodged after the period in which the objection is required to be lodged has passed as if it had been lodged within that period, by failing to consider the inability of the Applicant to consider whether to amend the assessments of other taxpayers in the event that the objection is allowed as a species of prejudice to the Applicant which the Tribunal is required to take into account.
  2. Whether the Tribunal erred in law in the exercise of its discretion under section 14ZX(1) of the Taxation Administration Act because, on the facts as found, it was not reasonably open to the Tribunal to regard the Respondent's explanation for the delay in lodging objections to the assessments for the relevant income years as a factor which weighed in favour of the exercise of the discretion in section 14ZX(1).
Decision or outcomeThe Commissioner's appeal was dismissed.

The Court held that the Tribunal did not conclude that the prejudice was irrelevant, the Tribunal considered the prejudice that may be suffered and concluded that it should be given no real weight, what occurred was 'an explicit consideration of the Commissioner's prejudice argument'.

The Commissioner had contended that a mere change in professional advice could not be a factor that pointed towards a favourable exercise of the discretion, however, the court found that what occurred was not a mere change, and the change had in fact been prompted by the Commissioner's own actions and change of view.
Why did the issue involve uncertainty and/or contention?This case concerned the Commissioner's decision not to exercise his discretion to treat an objection as if it had been lodged within the required timeframe and more specifically his reasons for making this decision.

In particular, this case considered several fundamental factors that the Commissioner takes into consideration when determining whether an extension of time for lodging an objection should be granted, specifically the:
  1. Prejudice that would be experienced by the Commissioner if an extension of time was granted; and
  2. Reasons for the extent of delay in lodging the objection and the circumstances surrounding the delay.


The Full Court rejected the Commissioner's application of these factors to the facts in this case and upheld the Tribunal's decision.

The facts of this case are unique to the taxpayer. A decision impact statement will be issued by the ATO in due course.
StatusThe decision was handed down on 24 August 2017.
Name: Commissioner of Taxation v Kamal Jayasinghe [2017] HCA 26
VenueHigh Court of Australia
IssueWhether foreign source income payments received by the taxpayer were derived while the taxpayer was engaged by the United Nations Office of Project Services (UNOPS) are exempt from income tax pursuant to regulations made under the International Organisations (Privileges and Immunities) Act 1963 (Cth) (IOPI Act).

Specifically, whether the foreign source income payments are exempt from taxation as being salaries and emoluments received by the taxpayer as a person who 'holds an office' in an international organisation pursuant to section 6(1)(d) of the IOPI Act.
Decision or outcomeThe Commissioner's appeal was allowed in full.

The High Court held that the taxpayer was not entitled to exemption from taxation in the income years in question, as he was not a person who held an office in an international organisation within the meaning of section 6(1)(d)(i) of the IOPI Act, and that the Commissioner was not bound to exempt the taxpayer from taxation by reason of section 357-60(1) of Sched 1 to the Taxation Administration Act 1953 (Cth) and Taxation Determination TD 92/153.
Why did the issue involve uncertainty and/or contention?The matter clarifies the interpretation and construction of the meaning of 'holds an office' in relation to the international law framework underpinning the IOPI Act. The matter resolves uncertainty around the concept of an office holder and if an office holder can include all persons participating in the work of the UN.

The decision confirms the Commissioner's view and application of TD 92/153 to 'a person who holds an office' in finding the taxpayer to be an employee of the UN and not an expert or consultant and further, whether the Determination applies for the purpose of section 357-60(1)(a) of Schedule 1 of the Taxation Administration Act 1953 (Cth).
StatusThe decision was handed down on 9 August 2017.

The Australian Taxation Office (ATO) is consulting with the Department of Foreign Affairs and Trade in relation to this decision.

A decision impact statement will be issued by the ATO in due course.
Name: Denmark Community Windfarm Ltd v Commissioner of Taxation [2017] FCA 478
VenueFederal Court of Australia
IssueWhether the Renewable Remote Power Generation Program (RRPGP) grant to the taxpayer is an assessable recoupment under:
  1. subsection 20-20(2) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997); and/or
  2. subsection 20-20(3) of the ITAA 1997.
Decision or outcomeThe Taxpayer's appeal was dismissed.

The Federal Court found the grant had been received as recoupment of an outgoing and therefore is treated as an assessable recoupment under both subsections 20-20(2) and 20-20(3) of the ITAA 1997, even if the payment was treated as being on capital account.
Why did the issue involve uncertainty and/or contention?There were 3 points of contention in this matter:
  1. Whether the grant received by the Taxpayer is received by way of indemnity pursuant to subsection 20-20(2) of the ITAA 1997;
  2. Given that Subdivision 328-D of the ITAA 1997 is not included in the table in section 20-30, whether the words 'can deduct' in subsection 20-20(3) of the ITAA 1997 apply to include an amount as an assessable recoupment when the relevant deduction for decline in value has been claimed under Subdivision 328-D ITAA 1997, but would have been able to be deducted under Division 40; and
  3. Whether the words 'the loss or outgoing' in both subsections 20-20(2) and 20-20(3) of the ITAA 1997 mean that these subsections are ineffective in their application to assessable recoupments when the corresponding deductions are claimed for decline in value because the deduction claimed in these instances is not 'the loss or outgoing' but rather an amount calculated by the application of a formula in the legislation.
StatusA decision was hand down on 10 May 2017. The Taxpayer has appealed the decision to the Full Court of the Federal Court of Australia.

If you think that you have an issue which may be an issue that the ATO seeks to test, please contact the Test Case Litigation Program at testcaselitigationprogram@ato.gov.au.

DISCLAIMER: There is no guarantee that a case will produce the law clarification sought and that the litigation underway may have consequences for other taxpayers.

Last updated: 6 December 2017


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