Case: MacFarlane v Commissioner of Taxation (1986) 13 FCR 356
Outcome: considered
One is reminded of what was said by Beaumont J in the Full Court of this Court in MacFarlane v Commissioner of Taxation (1986) 13 FCR 356 at 373 in relation to a similar argument with respect to s 108 of the ITAA 36, the predecessor to Div 7A: 'The assessments were challenged by the appellant on a number of grounds. In the first place, the appellant contended that the amounts paid to him were not "payments ... made by the company ... for the individual benefit of [one] of its shareholders" within the meaning of s 108(1). It was contended on behalf of the appellant that the situation should be characterised as an appropriation (perhaps a misappropriation) of the company's property on his part rather than a payment made by the company for his individual benefit, as s 108 requires. A similar question arose in Federal Commissioner of Taxation v Blakely [1951] HCA 17 ; (1951) 82 CLR 388. There, in a "de facto" liquidation, the assets of a company were appropriated by its shareholders. Latham CJ, in dissenting on the point, held that such an appropriation was not a distribution by the company and thus, not a "dividend" as then defined in s 6 of the Act. But Fullagar J (Dixon J agreeing) held that there was a distribution by the company: see also the discussion in Federal Commissioner of Taxation v Slater Holdings Ltd [1984] HCA 78 ; (1984) 59 ALJR 89 per Gibbs CJ at 91. In my opinion, the reasoning of Fullagar J is applicable here. The income in question was the property of the company. That income was applied for the benefit of one of the company's shareholders with the acquiescence of the controllers of the company. The application of funds in this way may well have constituted a breach of the director's fiduciary duties at least so far as the company's creditors were concerned: see Walker v Wimborne [1976] HCA 7 ; (1976) 137 CLR 1 per Mason J at 7. But whether the conduct of the company's directors was liable to be challenged as a misfeasance is a different question. Payments were made by the company out of its funds which were for the individual benefit of one of its shareholders. That is sufficient to satisfy the opening words of s 108(1), whatever significance the conduct of those involved may have in other legal contexts.' 37 I agree with the Commissioner's submission that there was ample evidence to support the conclusion of the Tribunal that Mr Docherty controlled 3D and that, when he caused payments out to himself, they were payments by 3D and not a misappropriation of its moneys. The Tribunal's incorrect finding that Mr Docherty was the sole director was not necessary or relevant to the decision of the Tribunal that there had been payments made by 3D and Div 7A should apply. 38 It follows, in my view, that this appeal should also be dismissed. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds. Associate: Dated: 3 October 2008 Counsel for the Applicant: Mr D McGovern SC with Mr AJ O'Brien Solicitor for the Applicant: SWAAB Attorneys Counsel for the Respondent: Mr DJ Fagan SC with Mr RS Quinn Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 18 September 2008 Date of Judgment: 3 October 2008 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2008/1477.html