Australian Tax Office Rulings: Two New Decision Impact Statements

On 8 November 2011 the Australian Taxation Office (ATO) released Decision Impact Statements (DIS) for the following cases:

• Re Mynott and Commissioner of Taxation (DIS 2010/2689-92) [2011] AATA 539

• British American Tobacco Australia Services Ltd v Federal Commissioner of Taxation (DIS NSD 80 of 2010) [2010] FCAFC 130

This post provides a short summary of each DIS.

The Mynott Case concerned whether the applicant was a 'resident of Australia', as defined in s 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)  for the 1999 - 2002 tax years. After graduation as an electronic engineer in 1984, the applicant worked in Australia for 13 years, leaving on 18 September 1997 to work overseas. The applicant worked on various short term contracts in different countries until he returned to Australia permanently on 30 January 2002. During the period 1999 - 2002, the applicant derived foreign income from his work, but did not include that income in his Australian income tax returns, and did not pay any foreign tax on the income after mid-1998. The Administrative Appeals Tribunal accepted that the applicant did not 'reside' in Australia for the purposes of the definition of 'resident of Australia' in s 6(1) of the ITAA 1936 for the period 1999 - 2002. Accepting the applicant kept a bank account in Australia during this period, and regularly visited his parents the Tribunal also noted that he sold his principal Australian residence in 1999, did not work in Australia during the relevant time, and kept a domestic base in the Philippines for much of the time.  As a result the Tribunal decided the applicant did not reside in Australia at the relevant time. The view of the ATO “accepts that it was reasonably open to the Tribunal, on the evidence before it, to decide that the applicant did not reside in Australia, and had a permanent place of abode in the Philippines, between 18 September 1997 and 30 January 2002.”

British American Tobacco Australia Services Ltd v FCT concerned the application of Part IVA of the ITAA 1936 to the particular arrangement entered into by the taxpayer. The essential facts were that in 1999 there was a global merger of the British American Tobacco ('BAT') group and the Rothmans International ('RI') group. Before the merger could proceed in Australia, the ACCC required disposal of certain tobacco brands by the taxpayer who was a company in the BAT group to a third party to mitigate the effect of the merger on competition in the Australian market. The taxpayer did not include an amount in its assessable income in respect of the sale of the brand assets to the RI company because of Capital Gains Tax rollover provisions that became available upon the event of the merger. The subsequent capital gains made by the RI company on the sale of the same assets to Imperial Tobacco were reduced to nil through the application of net capital losses that had been made by members of the former RI group. At first instance in the Federal Court, Emmett J found that Part IVA of the Income Tax Assessment Act 1936 applied to the arrangement, this decision being substantially confirmed on appeal. The view of the ATO the decision is consistent with principles established in earlier case authorities relating to Part IVA and the concepts of scheme, tax benefit and dominant purpose.

[The full Statements are also available to subscribers to our Point-in-Time Income Tax Service. Subscribers, see Daily Alerting Service.]

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