A landmark decision handed down this week by the Full Court of the Federal Court has affirmed that certain payments owed by a trust to a corporate beneficiary should not be treated as loans for the purposes of Division 7A of the Tax Act.
ABL tax partner, Paul Sokolowski, who led the case on behalf of our client, Steven Bendel, is quoted in the AFR describing the landmark decision as “a resounding win for the taxpayer and private groups across Australia”.
In a Bulletin to our tax clients, Paul and lawyer Timothy Graham explained that the Bendel Decision focuses on arrangements that will be familiar to many advisors and private groups across Australia. The taxpayers were an individual and a private company. Both taxpayers were beneficiaries of a discretionary trust. The individual was the director of both the trustee and the corporate beneficiary. From time to time, the trustee resolved to distribute income to the corporate beneficiary. The corporate beneficiary did not call for payment of those entitlements.
The Commissioner applied his long-held view, finding that the UPE owed to the corporate beneficiary was a “loan”, and therefore a deemed dividend, for the purposes of Division 7A. Our clients objected to the Commissioner’s assessments, those objections were disallowed, and the taxpayers appealed to the Administrative Appeals Tribunal (AAT). The AAT found for the taxpayers and rejected the Commissioner’s position. The stage was then set for the Commissioner’s appeal to the Full Court of the Federal Court.
As reported in Accountants Daily, in the coming weeks the Commissioner may choose to seek special leave to appeal the Bendel decision to the High Court.
The article quotes from the ABL client bulletin, commenting that “it is notoriously difficult to predict the outcome of special leave applications. However, with a strong, unanimous full court decision, applying orthodox principles of statutory construction, he (the Commissioner) may face an uphill battle.”
A spokesperson told the AFR that the ATO is “considering the decision of the full Federal Court including whether an application for special leave to appeal to the High Court may be appropriate”.
To read the full article from the AFR, click here.
To read the article from Accountants Daily, click here.
