Case: Federal Commissioner of Taxation v Hart [2004] HCA 26 ; (2004) 217 CLR 216
Outcome: cited
Those findings were open on the evidence and are consistent with authority concerning the scope of the term 'scheme' ( Federal Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34 ; (1996) 186 CLR 404 at 425, McHugh J; Federal Commissioner of Taxation v Peabody [1994] HCA 43 ; (1994) 181 CLR 359 at 383, Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ; Federal Commissioner of Taxation v Hart [2004] HCA 26 ; (2004) 217 CLR 216 at 225, Gleason CJ and McHugh J [9], Gummow and Hayne JJ, 236 [43], Callinan J, 250 [85]). 76 Accordingly, having regard to the eight factors and the alternative postulate ( Federal Commissioner of Taxation v Hart (supra) at 243, Gummow and Hayne JJ [66]) open on the evidence, the Tribunal concluded as was open to it, that the dominant purpose of entering into and carrying out the scheme was to obtain a tax benefit of non-inclusion of the amount of a capital gain in the assessable income of each taxpayer that would have been realised upon disposal, as contemplated by s 177C(1)(a). 77 Each taxpayer says that no tax benefit arose in connection with the scheme and thus s 177D(a) is not satisfied with the result that Part IVA does not apply to the sequence of transactions found to be a scheme. In other words, s 177D falls at the threshold and Part IVA has no application to the sequence of transactions. That result is said to arise because the statutory definition of a tax benefit contained in s 177C(1)(a) is subject to an express exclusion which removes the non-inclusion of a postulated capital gain from the assessable income of a taxpayer where the non-inclusion is attributable to the making of a choice or election expressly provided for by the 1997 Act (or the 1936 Act). 78 The relevant provisions are these. SECTION 177C TAX BENEFIT 177C(1) [Obtaining a tax benefit] Subject to this section, a reference in this Part to the obtaining by the taxpayer of a tax benefit in connection with a scheme shall be read as a reference to: (a) an amount not being included in the assessable income of the taxpayer of a year of income where that amount would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer of that year of income if the scheme had not been entered into or carried out; or (b) ... and, for the purposes of this Part, the amount of the tax benefit shall be taken to be: (c) in the case to which paragraph (a) applies the amount referred to in that paragraph; and ... 177C(2) [Exclusions] A reference in this Part to the obtaining by the taxpayer of a tax benefit in connection with a scheme shall be read as not including a reference to: (a) the assessable income of the taxpayer of a year of income not including an amount that would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer of that year of income if the scheme had not been entered into or carried out where: (i) the non-inclusion of the amount in the assessable income of the taxpayer is attributable to the making of an agreement, choice, declaration, election or selection, the giving of a notice or the exercise of an option (expressly provided for by this Act or the Income Tax Assessment Act 1997 ) by any person, except one under subdivision 126-B, 170-B or 960-D of the Income Tax Assessment Act 1997 ; and (ii) the scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the declaration, agreement, election, selection, choice, notice or option to be made, given or exercised, as the case may be.