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Test case litigation register

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

as at 12 August 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

  • 4 October 2017 meeting: closing date for applications is 12 September 2017
  • 5 December 2017 meeting: closing date for applications is 14 November 2017
  • 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

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: 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.

A hearing for Issue 1. has been set down for 31 October 2017. Issue 2. is 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 s 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: 1-6N0G7UK
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.
ATO reference: 1-7HFVQ9T
VenueFull Court of the Family Court of Australia.
IssueWhether section 90AE of the Family Law Act 1975 (Cth) (FL Act) enables the Family Court of Australia and the Federal Circuit Court to make an order altering the taxation liabilities of one or both of the parties to a marriage or any related entity.
Why does the issue involve uncertainty and/or contention?The application of section 90AE of the FL Act has not been the subject of judicial determination in so far as its application to taxation liabilities.
Impact on other taxpayers and mitigation strategiesWhilst this case concerns the rights of the Commissioner as they relate to the taxation liabilities of parties to a marriage, its determination 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.

The uncertainty regarding this issue has been raised in past family law matters and it is anticipated that raising this discrete issue in a case stated to the Full Court of the Family Court of Australia will resolve this uncertainty.
StatusThis matter was heard on 9 March 2017.

A decision has been reserved.
ATO reference: 1-6QIN2RP and 1-7NM5EN5
VenuePre-litigation
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.
StatusThis matter is progressing through pre-litigation.

DECLINED MATTERS

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 section 62 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 s 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 s 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: 1-915FAD0
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 s 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 s 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 s 8-1(2)(b) of ITAA 1997?


2. Does s 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 s 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 s 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 s 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: 1-9BX35V6
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: 1-7N1TY46
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: 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 s 6(1)(d)(i) of the IOPI Act, and that the Commissioner was not bound to exempt the taxpayer from taxation by reason of s 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 subsection 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.
Name: Commissioner of Taxation v Financial Synergy Holdings Pty Ltd [2016] HCA Trans 232
VenueHigh Court of Australia
IssueWhether the court arrived at the proper interpretation of subsection 110-25(2)(b) of the Income Tax Assessment Act 1997 (ITAA 1997), and in particular the phrase 'the time of acquisition', when read in conjunction with subsection 122-70(3) of the ITAA 1997.
Decision or outcomeSpecial leave refused
Why did the issue involve uncertainty and/or contention?This case concerned the statutory interpretation of a deeming provision within the ITAA 1997, which is also an issue which extends more broadly to any Act which deploys statutory fictions and which is regularly amended.

This special leave application sought to overturn the Full Federal Court's decision on the basis that it limited the application of a deeming provision by reference to the original purpose for which it was introduced (FCT v Comber (1986) 10 FCR 88).

The Commissioner wanted to argue that having regard to section 11B of the Acts Interpretation Act 1901, the original purpose of a deeming provision used in an Act may change by reason of a subsequent amendment made to that Act.
StatusThe Commissioner's application for special leave was refused on 7 October 2016.

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: 12 August 2017


history   Top  
   Date   Version 
    1 April 2013   Original document   
    1 July 2013   Updated document   
    8 October 2013   Updated document   
   20 December 2013   Updated document   
   25 March 2014   Updated document   
    1 July 2014   Updated document   
   26 September 2014   Updated document   
   15 December 2014   Updated document   
   30 March 2015   Updated document   
   26 June 2015   Updated document   
   14 September 2015   Updated document   
   26 November 2015   Updated document   
   21 January 2016   Updated document   
   18 May 2016   Updated document   
   11 July 2016   Updated document   
   29 August 2016   Updated document   
   21 November 2016   Updated document   
    6 December 2016   Updated document   
   16 March 2017   Updated document   
   12 May 2017   Updated document   
 You are here ®  18 August 2017   Current document   


 


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