Commissioner of Taxation v Resource Capital Fund IV LP & Ors
Document type: Decision Impact Statement
Venue: Federal Court of Australia (1817 of 2013)
Judgment date: 22 October 2013
Date published: 23 January 2014

Summary of decision:
Outlines the ATO's response to this case, which concerns whether foreign currency can be the subject of a notice under section 255 of the Income Tax Assessment Act 1936 (ITAA 1936 ).

Overview of facts:
The First Respondent ("RCF IV") and the Second Respondent ("RCF V") are two limited partnerships formed in the Cayman Islands. RCF IV and RCF v owned shares in Talison Lithium Pty Ltd ("Talison"), which is an Australian incorporated company. | Under an approved scheme of arrangement, RCF IV and RCF v disposed of their shares in Talison to a purchaser, Windfield Holdings Pty Ltd. The amount payable to RCF IV and RCF v by the purchaser was denominated in Canadian currency. The amount was payable out of a Canadian bank account maintained by Talison, who was acting as agent of the sellers for the purposes of collecting and distributing the sale proceeds. | On 26 March 2013, the Commissioner issued assessments to RCF IV and RCF V, with the effect of assessing a tax liability in an amount denominated in Australian dollars arising from the disposal of their shares in Talison. | On 13 May 2013, the Commissioner issued separate notices to Talison under section 255 of the Income Tax Assessment Act 1936 ("ITAA 1936") in respect of RCF IV and RCF v The notices required Talison, "as a person having the receipt and control or disposal of money belonging to the Taxpayer" (the "controller") and being required to "pay the tax due and payable by the Taxpayer", to retain the amounts assessed to the Taxpayers from the amount that Talison had receipt, control or disposal of. | The primary judge declared that the notices did not impose an obligation on Talison to retain or pay to the Commissioner, or convert into Australian currency and retain and pay to the Commissioner, any amount of Canadian currency. | This decision follows an appeal by the Commissioner against the findings of the primary Judge. | Issues decided by the court | The primary issue determined by the Court is whether the reference to "money" in the context of subsection 255(1) of the ITAA 1936 is confined to Australian currency or whether it extends to foreign currency. Their Honours unanimously concluded that subsection 255(1) does extend to money denominated in foreign currency. | In the lead decision, Gordon J addressed the central question of the meaning of "money" in the provision, by observing at [45] that: "Nothing in the text or context of s 255 suggests that the phrase all money due does not extend to debts due by the controller to the non-resident if those debts are denominated in foreign currency..." | Her Honour went on to say that to restrict the phrase as such would render the operation of the provision "impractical, if not absurd". | Gordon J highlighted that while section 255 imposes an obligation to pay the tax due and payable by the non-resident, and to do so in Australian currency, the obligation must be read in conjunction with section 255(1)(b), which provides the controllers with the authority to retain "so much is as sufficient to pay the tax which is or will become due by the non-resident": Bluebottle UK limited v Deputy Commissioner of Taxation (2007) 232 CLR 598. In this respect, her Honour stated at [48] that: "...s255 does not oblige the recipient of the notice (the controller) to apply the money retained from the non-resident in satisfaction of the tax liability...However...the section caps the quantum of the liability to the amount that the recipient of the notice...retained or should have retained." | Her Honour further observed that the operation of the section is neither affected nor changed by the fact that the money retained by the controller is in foreign currency. In acknowledging the Commissioner's submissions, her Honour observed that: "...if the controller's liability is to pay the non-resident taxpayer in foreign currency, then the controller is authorised to retain so much of that foreign currency as is sufficient to pay the tax debt in Australian dollars." | While not pertinent to the Court's ultimate finding, her Honour also considered the reliance placed by the Respondents on section 218 and 255 of the ITAA 1936, and noted that the sections are not materially of the same effect and purpose.

Issues decided:
The primary issue determined by the Court is whether the reference to "money" in the context of subsection 255(1) of the ITAA 1936 is confined to Australian currency or whether it extends to foreign currency. Their Honours unanimously concluded that subsection 255(1) does extend to money denominated in foreign currency. In the lead decision, Gordon J addressed the central question of the meaning of "money" in the provision, by observing at [45] that: "Nothing in the text or context of s 255 suggests that the phrase all money due does not extend to debts due by the controller to the non-resident if those debts are denominated in foreign currency..." Her Honour went on to say that to restrict the phrase as such would render the operation of the provision "impractical, if not absurd". Gordon J highlighted that while section 255 imposes an obligation to pay the tax due and payable by the non-resident, and to do so in Australian currency, the obligation must be read in conjunction with section 255(1)(b), which provides the controllers with the authority to retain "so much is as sufficient to pay the tax which is or will become due by the non-resident": Bluebottle UK limited v Deputy Commissioner of Taxation (2007) 232 CLR 598. In this respect, her Honour stated at [48] that: "...s255 does not oblige the recipient of the notice (the controller) to apply the money retained from the non-resident in satisfaction of the tax liability...However...the section caps the quantum of the liability to the amount that the recipient of the notice...retained or should have retained." Her Honour further observed that the operation of the section is neither affected nor changed by the fact that the money retained by the controller is in foreign currency. In acknowledging the Commissioner's submissions, her Honour observed that: "...if the controller's liability is to pay the non-resident taxpayer in foreign currency, then the controller is authorised to retain so much of that foreign currency as is sufficient to pay the tax debt in Australian dollars." While not pertinent to the Court's ultimate finding, her Honour also considered the reliance placed by the Respondents on section 218 and 255 of the ITAA 1936, and noted that the sections are not materially of the same effect and purpose.

ATO view of decision:
The decision is significant in that it confirms the ATO view that the reference to "money" in subsection 255(1) (b) is not confined to Australian currency, but extends to foreign currency. | Importantly, the decision confirms that while the amount of tax due and payable by the non-resident entity is to be paid in Australian dollars, section 255 does not require the payment of this amount to come directly from the money which was the subject of the retention by the person having the receipt, control or disposal of money belonging to a non-resident taxpayer. | All that is required by section 255 is for the controller to retain sufficient money to address the tax liability. Accordingly, if the money retained by the controller is denominated in foreign currency, a sufficient amount of such foreign currency must be retained to pay the liability. The quantum of amount to be retained is capped to the liability set out in the notice. | There are no negative implications arising from this decision.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A

Legislative references: Income Tax Assessment Act 1915 (Cth) The Act Income Tax Assessment Act 1922 (Cth) The Act Income Tax Assessment Act 1936 (Cth) The Act Taxation Administration Act 1953 (Cth) The Act
Case references: Bluebottle UK Limited v Deputy Commissioner of Taxation [2007] HCA 54 (2007) 232 CLR 598 67 ATR 1 2007 ATC 5302 Bonython v The Commonwealth of Australia [1948] HCA 2 (1948) 75 CLR 589 Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation [2009] HCA 32 (2009) 239 CLR 346 72 ATR 856 2009 ATC 20-125 Commissioner of Taxation v Energy Resources of Australia Ltd (1994) 54 FCR 25 29 ATR 553 94 ATC 4923 Consolidated Media Holdings Ltd v Federal Commissioner of Taxation [2012] FCAFC 36 (2012) 201 FCR 470 2012 ATC 20-308 83 ATR 793 Cusack v Federal Commissioner of Taxation [2002] FCA 1012 (2002) 120 FCR 520 2002 ATC 4676 50 ATR 443 Deputy Commissioner of Taxation v Conley (1988) 88 FCR 98 40 ATR 227 98 ATC 5090 McNamara v Consumer Trader and Tenancy Tribunal [2005] HCA 55 (2005) 221 CLR 646 Moore v Commonwealth [1951] HCA 10 (1951) 82 CLR 547 Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5 (2008) 233 CLR 259
Subject references: Income tax Foreign currency Non-resident