Aitken & Langford and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (QT2005/52; QT2007/15)
Judgment date: 10 February 2009
Date published: 4 August 2009
Decision outcome: Adverse

Summary of decision:
The Tax Office's response to these cases which concerned whether amounts paid to shareholders of a company, being the proceeds from the sale of company assets and paid to the shareholders by the purchaser, are dividends assessable under s. 44 ITAA 1936

Overview of facts:
The applicants were directors and shareholders of an Australian resident company which conducted timber logging operations in Papua New Guinea (PNG) from 1989 to 1995. Initially the company carried out operations on its own behalf, but by 1995 the company had ceased its own logging operations and its major activity was the management of the PNG logging operations of a second company of which it was a 40% shareholder. | In the 1995 financial year, the company terminated its management agreement with the second company and sold its 40% shareholding to a third party for approximately US$1.2 million, effectively ceasing its business operations in PNG. | Pursuant to the sale contract, the proceeds of the sale were to be paid directly to Mr Langford and Mr Aitken by way of their solicitor in Singapore. That is, the sale proceeds were to be paid to the shareholders rather than the company. The Tribunal found that the consideration was received by the applicants under an implied trust, with the funds in question being held and used by the applicants for the benefit of the company (to pay out accruing liabilities of the company, etc). | Issues decided by the court or tribunal | The Tribunal found that the receipts in question were the beneficial property of the company, rather than the applicants and were accordingly not dividends assessable under section 44 of the Income Tax Assessment Act 1936 .

Issues decided:
The Tribunal found that the receipts in question were the beneficial property of the company, rather than the applicants and were accordingly not dividends assessable under section 44 of the Income Tax Assessment Act 1936 .

ATO view of decision:
The Tribunal found the payments to the applicants were held by them on trust and used for the benefit of the company. This finding of fact was based on oral evidence which was neither supported by, nor inconsistent with, the documentary evidence. It was a finding of fact open on the evidence. The Tribunal's decision accordingly does not disclose an error of law.

Administrative treatment:
Implications on current Public Rulings & Determinations | Nil

Legislative references: Income Tax Assessment Act 1936 Section 44
Subject references: Taxation Assessable income Dividends Burden of proof