Intoll Management Pty Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (NSD 567/2012)
Judgment date: 11 December 2012
Date published: 7 September 2016

Summary of decision:
Outlines the ATO's response to this case which concerns the application of section 23AJ of the ITAA 1936 to dividends paid to a trustee, where that entity was the trustee of a trust which elected to be treated as the head company of a consolidated group.

Overview of facts:
In 1996, a public trading trust within the terms of Division 6C of the Income Tax Assessment Act 1936 (ITAA 1936) was established by Deed of Trust (the 'Trust'). | The Trust was a 'public trading trust' under Division 6C of the ITAA 1936 until the year ended 30 June 2004. | The Trust had several sources of income, but importantly for the purposes of the proceedings in the matter before the Full Federal Court, it held shares in two foreign corporations. | The Trust made a choice to form a tax consolidated group effective 1 July 2003 and is the head company of that group. | As trustee of the Trust, the taxpayer owned 13.4% of the shareholding in Macquarie Infrastructure (Luxembourg) SA (MILSA) and 13.4% of the shareholding in Macquarie Infrastructure (Toll Route) SA (MITRSA). MILSA and MITRSA are companies incorporated in Luxembourg and are not Australian residents for the purposes of Part X of the ITAA 1936. | On 2 November, 2004 the applicant received the following dividends: • $127,606,402 from MILSA in respect of the applicant's MILSA shares, and • $55,716,657 from MITRSA in respect of the applicant's MITRSA shares. | • $127,606,402 from MILSA in respect of the applicant's MILSA shares, and • $55,716,657 from MITRSA in respect of the applicant's MITRSA shares. | The Trust, as an assumed head company of a consolidated group, lodged a tax return for the year ended 30 June 2005 on 3 April 2006. It excluded the MILSA and MITRSA dividends from its assessable income on the basis that section 23AJ of the ITAA 1936 treated them as non assessable non exempt dividends; ie, non-portfolio dividends satisfying the section 317 of the ITAA 1936 definition. A deemed assessment for the year ended 30 June 2005 arose upon the applicant's lodgment of the return. | The Commissioner amended the Trust's (the 'assumed company's') assessment by notice issued on 18 February 2011 and included the MILSA and MITRSA dividends in the Trust's assessable income. | Issues decided by the court | The issues relevantly before the Court were: • if section 44 of the ITAA 1936 would otherwise operate to include the dividends in assessable income of the Trust, now an assumed company under Subdivision 713-C of Pt 3-90 of the ITAA 1997, whether section 23AJ of the ITAA 1936 operated to exclude the dividends received by the taxpayer from two non-resident companies from assessable income. At the centre of the issue was that section 23AJ of the ITAA 1936 did not treat dividends as non-assessable non-exempt income received by an Australian resident company in circumstances where: (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. • if the taxpayer was unsuccessful on the first issue, whether the Commissioner was bound by his Taxation Determination TD 2008/25: Sch 1, section 357-60 of the Taxation Administration Act 1953 (the "TAA 1953"). | • if section 44 of the ITAA 1936 would otherwise operate to include the dividends in assessable income of the Trust, now an assumed company under Subdivision 713-C of Pt 3-90 of the ITAA 1997, whether section 23AJ of the ITAA 1936 operated to exclude the dividends received by the taxpayer from two non-resident companies from assessable income. At the centre of the issue was that section 23AJ of the ITAA 1936 did not treat dividends as non-assessable non-exempt income received by an Australian resident company in circumstances where: (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. • if the taxpayer was unsuccessful on the first issue, whether the Commissioner was bound by his Taxation Determination TD 2008/25: Sch 1, section 357-60 of the Taxation Administration Act 1953 (the "TAA 1953"). | (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. | The Full Federal Court unanimously allowed the taxpayer's appeal. | Issue 1 | The first issue was whether, if section 44 of the ITAA 1936 would otherwise apply to treat the dividends received from the foreign companies, Subdivision 713-C of the Income Tax Assessment Act 1997 (ITAA 1997) would also allow section 23AJ of the ITAA 1936 to apply to those dividends so as to exclude them from assessable income. | The taxpayer argued that Subdivision 713-C of the ITAA 1997 treated the Trust as a company, and for that reason it had the effect of deeming the Trust to be the beneficial owner of the shares within the meaning of section 160AFB(4) of the ITAA 1936 and that section 23AJ of the ITAA 1936 applies to make the dividends non assessable, non exempt income. | The Commissioner contended that the exemption in section 23AJ of the ITAA 1936 does not apply because the taxpayer is the trustee and not the beneficial owner of the shares. The Trust (as head company) is assessable under s 44 on receipt of the dividends. | On the interaction between the provisions, their Honours outlined at [37] that: "... the words of ss713-135 and 713-140 are clear, they apply equally to s23AJ as they do to s44 of the 1936 Act ." | In determining the applicability of section 23AJ of the ITAA 1936, their Honours said, at [39-40]: " It is the Trust which (as head company) is assessed on having derived the dividends. The assessment is not issued to a beneficiary or some actual or intended trust estate of which the Trust is the trustee (even if the Trust as trustee were a meaningful, relevant concept ). The Trust does not receive the dividend as trustee, but for its own benefit as an assumed company, so as to be assessable upon it under s 44, subject to the operation of s 23AJ ." | Issue 2 | Although the Court found it unnecessary to consider Issue 2, that is, whether Tax Determination TD 2008/25 would have bound the Commissioner to allow the taxpayer the benefit of section 23AJ of the ITAA 1936, the Court made the following comments and observations obiter dictum. | The Full Federal Court was of the view that the Tax Determination was expressed in such a way that it would have bound the Commissioner to allow the taxpayer the beneficial treatment provided for by section 23AJ of the ITAA 1936. | The Tax Determination was divided into several parts, with headings such as 'Question', 'Ruling' (which purported to answer the question posed by the 'Question' the Tax Determination was attempting to deal with), 'Explanation', 'Date of Effect' amongst other items. | Paragraph 20 of Tax Determination TD 2008/25 reads as follows: "Subdivision 713-C of the ITAA 1997 contains special provisions that allow a corporate unit trust or public trading trust that chooses to form a consolidated group to be treated like the head company of the group, and in turn to be regarded as a company for most income tax purposes. Therefore, although an Australian resident company receiving a dividend in its capacity as trustee of a trust is specifically excluded from section 23AJ of the ITAA 1936, a trustee of a corporate unit trust or public trading trust that has chosen to be the head company of a consolidated group, and in turn to be regarded as a company for most income tax purposes, is not excluded. However, section 23AJ of the ITAA 1936 does not apply to a dividend paid to the trustee of a corporate unit trust or a public trading trust because the dividend will not be a non-portfolio dividend. The trustee is not the beneficial owner of the shares; the shares are held by the trustee for the benefit of the unit holders, who are not part of the consolidated group." | This statement appeared under the heading "Explanation". | However, under the heading 'Ruling', the Tax Determination made the following statement: "...[ Section ] 23AJ will apply to a dividend that is paid to a trust which is part of a consolidated group or a multiple entity consolidated (MEC) group ." | The Full Federal Court held that, notwithstanding whatever else was stated in the Tax Determination, (a public ruling for the purposes of the TAA 1953), the latter statement would have bound the Commissioner to allow the Trust the treatment afforded by section 23AJ of the ITAA 1936: Sch 1, s.357-60 of the TAA 1953.

Issues decided:
The issues relevantly before the Court were: • if section 44 of the ITAA 1936 would otherwise operate to include the dividends in assessable income of the Trust, now an assumed company under Subdivision 713-C of Pt 3-90 of the ITAA 1997, whether section 23AJ of the ITAA 1936 operated to exclude the dividends received by the taxpayer from two non-resident companies from assessable income. At the centre of the issue was that section 23AJ of the ITAA 1936 did not treat dividends as non-assessable non-exempt income received by an Australian resident company in circumstances where: (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. • if the taxpayer was unsuccessful on the first issue, whether the Commissioner was bound by his Taxation Determination TD 2008/25: Sch 1, section 357-60 of the Taxation Administration Act 1953 (the "TAA 1953"). • if section 44 of the ITAA 1936 would otherwise operate to include the dividends in assessable income of the Trust, now an assumed company under Subdivision 713-C of Pt 3-90 of the ITAA 1997, whether section 23AJ of the ITAA 1936 operated to exclude the dividends received by the taxpayer from two non-resident companies from assessable income. At the centre of the issue was that section 23AJ of the ITAA 1936 did not treat dividends as non-assessable non-exempt income received by an Australian resident company in circumstances where: (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. • if the taxpayer was unsuccessful on the first issue, whether the Commissioner was bound by his Taxation Determination TD 2008/25: Sch 1, section 357-60 of the Taxation Administration Act 1953 (the "TAA 1953"). (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. The Full Federal Court unanimously allowed the taxpayer's appeal. Issue 1 The first issue was whether, if section 44 of the ITAA 1936 would otherwise apply to treat the dividends received from the foreign companies, Subdivision 713-C of the Income Tax Assessment Act 1997 (ITAA 1997) would also allow section 23AJ of the ITAA 1936 to apply to those dividends so as to exclude them from assessable income. The taxpayer argued that Subdivision 713-C of the ITAA 1997 treated the Trust as a company, and for that reason it had the effect of deeming the Trust to be the beneficial owner of the shares within the meaning of section 160AFB(4) of the ITAA 1936 and that section 23AJ of the ITAA 1936 applies to make the dividends non assessable, non exempt income. The Commissioner contended that the exemption in section 23AJ of the ITAA 1936 does not apply because the taxpayer is the trustee and not the beneficial owner of the shares. The Trust (as head company) is assessable under s 44 on receipt of the dividends. On the interaction between the provisions, their Honours outlined at [37] that: "... the words of ss713-135 and 713-140 are clear, they apply equally to s23AJ as they do to s44 of the 1936 Act ." In determining the applicability of section 23AJ of the ITAA 1936, their Honours said, at [39-40]: " It is the Trust which (as head company) is assessed on having derived the dividends. The assessment is not issued to a beneficiary or some actual or intended trust estate of which the Trust is the trustee (even if the Trust as trustee were a meaningful, relevant concept ). The Trust does not receive the dividend as trustee, but for its own benefit as an assumed company, so as to be assessable upon it under s 44, subject to the operation of s 23AJ ." Issue 2 Although the Court found it unnecessary to consider Issue 2, that is, whether Tax Determination TD 2008/25 would have bound the Commissioner to allow the taxpayer the benefit of section 23AJ of the ITAA 1936, the Court made the following comments and observations obiter dictum. The Full Federal Court was of the view that the Tax Determination was expressed in such a way that it would have bound the Commissioner to allow the taxpayer the beneficial treatment provided for by section 23AJ of the ITAA 1936. The Tax Determination was divided into several parts, with headings such as 'Question', 'Ruling' (which purported to answer the question posed by the 'Question' the Tax Determination was attempting to deal with), 'Explanation', 'Date of Effect' amongst other items. Paragraph 20 of Tax Determination TD 2008/25 reads as follows: "Subdivision 713-C of the ITAA 1997 contains special provisions that allow a corporate unit trust or public trading trust that chooses to form a consolidated group to be treated like the head company of the group, and in turn to be regarded as a company for most income tax purposes. Therefore, although an Australian resident company receiving a dividend in its capacity as trustee of a trust is specifically excluded from section 23AJ of the ITAA 1936, a trustee of a corporate unit trust or public trading trust that has chosen to be the head company of a consolidated group, and in turn to be regarded as a company for most income tax purposes, is not excluded. However, section 23AJ of the ITAA 1936 does not apply to a dividend paid to the trustee of a corporate unit trust or a public trading trust because the dividend will not be a non-portfolio dividend. The trustee is not the beneficial owner of the shares; the shares are held by the trustee for the benefit of the unit holders, who are not part of the consolidated group." This statement appeared under the heading "Explanation". However, under the heading 'Ruling', the Tax Determination made the following statement: "...[ Section ] 23AJ will apply to a dividend that is paid to a trust which is part of a consolidated group or a multiple entity consolidated (MEC) group ." The Full Federal Court held that, notwithstanding whatever else was stated in the Tax Determination, (a public ruling for the purposes of the TAA 1953), the latter statement would have bound the Commissioner to allow the Trust the treatment afforded by section 23AJ of the ITAA 1936: Sch 1, s.357-60 of the TAA 1953.

ATO view of decision:
Where a trustee is paid a dividend from a non-resident in circumstances where that entity is the trustee of a trust that is the head of a consolidated group, the Commissioner will treat the dividend as having satisfied the requirement of the definition of 'non-portfolio dividend' in section 317 of the ITAA 1936, insofar as that section requires that the company (the trust) has a 'voting interest' in the relevant company that paid the dividend; specifically, that it is the 'beneficial owner of the shares', as required by former section 160AFB (now section 334A of the ITAA 1936). | The other requirements of section 23AJ and the definition of 'non-portfolio dividend' in section 317, including the requirement that the voting interest be held by the Australian entity amounts to 10% of the voting power as defined by s.334A of the ITAA 1936, will need to be considered on a case by case basis and properly satisfied.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | The Commissioner has reviewed Taxation Determination TD 2008/25 following the decision of the Full Federal Court in this matter. As such, no further amendments were required to be made.

Legislative references: Income Tax Assessment Act 1936 (Cth) s 23AJ s 44(1) s 160AFB(4) s 317 Income Tax Assessment Act 1997 (Cth) Part 3-90 Subdivision 713-C Taxation Administration Act 1953 (Cth) Schedule 1, section 357-60