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The Supreme Court of New South Wales (Gzell J) has held that an Australian company (Virgin Blue) had no obligation to retain and pay to the Commissioner tax on account of 2 non-resident shareholders of Virgin Blue to whom a dividend was payable on 15 December 2005. Prior to payment of the dividend, but after service on Virgin Blue of a notice under s 255 ITAA 1936 requiring payment of the tax, the 2 non-resident shareholders had assigned, for value, their rights to the future dividend to another non-resident company, Bluebottle.

The Court held, firstly, that at the date of service of the s 255 notice, there was no debt due to the 2 non-residents by Virgin Blue by virtue of the combined effect of ss 254U and 254V of the Corporations Act 2001. A debt would only arise on the date for payment of the dividend. Secondly, on the basis that there was a valid equitable assignment of a future legal chose in action prior to the date for payment of the dividend, which assignment took effect eo instanti when the debt came into existence, there was no moment in time when the legal title to the debt (dividend) vested in the 2 non-resident shareholders free from the equitable interest of Bluebottle. Consequently, the Commissioner's s 255 notice was ineffective: Bluebottle UK Ltd & Ors v Deputy Commissioner of Taxation & Anor [2006] NSWSC 706 (Supreme Court of New South Wales, Gzell J, 14 July 2006).

For a copy of the decision, go here

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