Federal Court v High Court… Battle lines drawn

I was going to write a blog on the tax High Court decisions in 2013, but I started to notice a trend, and a worrying trend at that.

Picture 6

In the Unit Trend case the High Court overturned a Federal Court decision that the GST anti avoidance rules in Division 165 did not apply. The facts were that a taxpayer put in a GST group and had transactions in the group to reduce GST payable by tens of millions of dollars. In my opinion this was certainly a situation that Division 165 applied to but the Federal Court took a very technical view and let the taxpayer off (this was just a choice and not a scheme…). Fortunately the High Court made a sensible decision.

In the Consolidated Media case the High Court overturned a Federal Court decision that no capital gain arose in relation to an off market share buyback. The facts were that the taxpayer wanted to do an off market share buy back and wanted as much as they could be treated as a franked dividend rather than a capital gain. Therefore, they created a new account called a “share buy back account”, funded by share capital, and argued that as the buy back did not come directly from share capital, even though the new account was just a share capital account by another name. The Federal Court accepted this technical argument, but fortunately the High Court made a sensible decision.

In the Qantas case the High Court overturned a Federal Court decision that there was no supply made by Qantas to people who do not turn up for their flights and so there is no GST payable on the amount paid. Of course there is a supply whether or not you turn up by the Federal Court took a very technical review of the carriage contract, but fortunately the High Court made a sensible decision.

In the Bargwanna case the High Court overturned a Federal Court decision that a trust met the rules to be a charity under Division 50 even though the case in the charity was used to offset a private home loan by a high wealth related party. The Federal Court came it its conclusion through a very technical review of the rules of what the funds of a charity can be used for, but fortunately the High Court made a sensible decision.

In the Mills case the High Court overturned a Federal Court decision that the imputation streaming provisions in Part IVA apply… Do I really need to say this but guess who made a decision based on technical arguments and guess who made the sensible decision.

And, apart from whether the Mining Tax was unconstitutional, this is all the tax cases the High Court has considered in the last two year. And in every case the Federal Court (apart from Edmonds J in the Mills case) has had to be put in its place. It appears the Federal Court keeps missing the forest for the trees. Fortunately, the High Court seems to keep an eye

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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