Picton Finance Limited and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2011/2379-2380)
Judgment date: 5 March 2013
Date published: 24 June 2013

Summary of decision:
Outlines the ATO response to a decision concerning the tax treatment of the profit on the sale of shares in an Australian publicly listed company which were bought and sold on behalf of a company incorporated in Vanuatu.

Overview of facts:
The Applicant was a company incorporated in Vanuatu. Its only activity was to invest in an Australian resident company. | Between September 2004 and October 2007, the Applicant acquired a substantial number of shares in the Australian resident company in three off market transactions. From about May to October 2007, the Applicant sold most of those shares in another three off market transactions. | Between August 2007 and April 2008, the Applicant bought and sold more shares in the Australian resident company on the Australian Stock Exchange. The transactions were carried out by an Australian stockbroker. | The Commissioner issued default assessments under section 167 of the Income Tax Assessment Act (ITAA 1936) to the Applicant for the 2007 and 2008 income tax years and imposed penalties. The Applicant was assessed on the profit from the sale of the shares, on the basis that it was Australian sourced income derived in the course of a share trading business, or otherwise for the purpose of profit making. | The Applicant objected to the Commissioner's assessments. The Commissioner disallowed the Applicant's objection to the 2007 income year but partly allowed the objection to the 2008 income year. The Applicant applied to the AAT for a review of the objection decision. | Issues decided by the court | The Tribunal set aside the decision under review in relation to the 2007 tax year and remitted to the Commissioner for redetermination in accordance with the Tribunal's reasons. The decision under review in relation to the 2008 tax year was affirmed. | The Tribunal found that the profit was assessable income of the Applicant for both income years on the basis that the profit on the sale of the shares was derived as part of a profit-making undertaking or scheme. However, on the basis of information made available at and after the hearing, the Tribunal found that the incorrect value was used for the cost of the shares for the 2007 year. This affected the amount of profit to which the Applicant was assessable. | The Tribunal concluded that the penalties had been correctly imposed. The Tribunal also found that there were no grounds for remitting the penalty - but noted that the penalty would be reduced upon the amendment of the 2007 assessment to take account of the AAT decision.

Issues decided:
The Tribunal set aside the decision under review in relation to the 2007 tax year and remitted to the Commissioner for redetermination in accordance with the Tribunal's reasons. The decision under review in relation to the 2008 tax year was affirmed. The Tribunal found that the profit was assessable income of the Applicant for both income years on the basis that the profit on the sale of the shares was derived as part of a profit-making undertaking or scheme. However, on the basis of information made available at and after the hearing, the Tribunal found that the incorrect value was used for the cost of the shares for the 2007 year. This affected the amount of profit to which the Applicant was assessable. The Tribunal concluded that the penalties had been correctly imposed. The Tribunal also found that there were no grounds for remitting the penalty - but noted that the penalty would be reduced upon the amendment of the 2007 assessment to take account of the AAT decision.

ATO view of decision:
The decision of the Tribunal was based solely on the facts in this particular case. It should not create a precedent for cases in the future.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not applicable

Legislative references: Income Tax Assessment Act 1936 s 6 s 167 Income Tax Assessment Act 1997 s 70-10 s 70-30 s 70-45 Taxation Administration Act 1953 s 14ZZK s 284-75 s 284-90 s 284-220 s 298-20 Tax Laws Amendment (2010 Measures No. 1) Act 2010 The Act
Case references: Australian Machinery and Investment Company Limited v Deputy Commissioner of Taxation (1946) 180 CLR 9 BAE Systems Australia (NSW) Pty Ltd v Federal Commissioner of Taxation (2008) 69 ATR 567 [2008] FCA 48 Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 (1977) 7 ATR 251 77 ATC 4096 Commissioner of Taxation v Kirk [1900] AC 588 Commissioner of Taxation (WA) v D & W Murray Limited (1929) 42 CLR 332 Esquire Nominees Ltd v Federal Commissioner of Taxation [1973] HCA 67 129 CLR 177 3 ATR 105 72 ATC 4076 Federal Commissioner of Taxation v Dalco [1990] HCA 3 168 CLR 614 90 ALR 341 20 ATR 1370 90 ATC 4088 Federal Commissioner of Taxation v Lewis Berger & Sons (Australia) Limited (1927) 39 CLR 468 Federal Commissioner of Taxation v St Hubert's Island (in liquidation) (1978) 138 CLR 210 78 ATC 4104 8 ATR 452 Federal Commissioner of Taxation v United Aircraft Corporation (1943) 68 CLR 525 Gashi v Commissioner of Taxation 2012 ATC 20-325 [2012] FCA 638 Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 5 ATR 672 75 ATC 4257 George v Federal Commissioner of Taxation (1952) 86 CLR 183 Lovell & Christmas Limited v Commissioner of Taxes [1908] AC 46 Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 24 ALR 217 9 ATR 638 79 ATC 4133 McCormack v Federal Commissioner of Taxation (1978-1979) 143 CLR 284 [1979] HCA 18 9 ATR 610 79 ATC 4111 Mount Morgan Gold Mining Company Ltd v Commissioner of Income Tax (Queensland) (1922-1923) 33 CLR 76 Nathan v Federal Commissioner of Taxation (1918) 25 CLR 183 Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 Tariff Reinsurances Limited v Commissioner of Taxes (Vic.) (1938) 59 CLR 194 Thorpe Nominees Pty Ltd v Federal Commissioner of Taxation (1988) 19 ATR 1834 88 ATC 4886
Subject references: Income tax Income Foreign income Shares Acquisition of shares Disposal of shares Securities as trading stock Trading stock valuation Income tax penalty