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03 Jun 10 Bamford - Decision Impact Statement & PS LA 2010/1

On 2 June 2010, the ATO issued a Decision Impact Statement in respect of the High Court decision in FCT v Phillip Bamford & Ors; Phillip Bamford & Anor v FCT [2010] HCA 10; 2010 ATC 20-170. The case concerned, amongst other things, the meaning of the phrase "income of the trust estate" and the words "that share" in s 97(1) of ITAA 1936.

The Statement says that the decision in Bamford means that the following Rulings and Practice statements must be withdrawn:

  • Taxation Ruling TR 95/29: Income tax: Division 16 - Applicability of averaging provisions to beneficiaries of trust estates carrying on a business of primary production
  • Taxation Ruling No IT 331: Adjustments to estate income as returned to arrive at net income of estate for the purposes of section 95
  • Law Administration Practice Statement (General Administration) PS LA 2005/1 (GA): Taxation of capital gains of a trust
  • Law Administration Practice Statement PS LA 2009/7: Approach to certain trust issues involving Division 6 of Part III of ITAA 1936 pending resolution of the Bamford litigation.

The Statement says:

"In recognition of the fact that trustees and beneficiaries may have already relied on [the first three of] these products in respect of the 2009-10 income year, they will be withdrawn only with effect from the beginning of the 2010-11 income year. However, a taxpayer who wishes to rely on the law as decided in Bamford for the year ended 30 June 2010 (or an earlier year) may of course do so."

The Statement continues:

"It should also be noted that the Commissioner will be withdrawing Taxation Ruling TR 92/13 (Trust dividends and franking). This ruling will be withdrawn on the basis that it concerns provisions of the taxation law which are no longer in force (the current imputation provisions in Subdivision 207-B of the Income Tax Assessment Act 1997 (ITAA 1997) appear to be more than a mere re-enactment of the former Division 7 of Part IIIAA). The Commissioner will, however, be consulting on a new interpretative product that will consider the operation of Subdivision 207-B (see below). Subdivision 207-B, which is part of the Simplified Imputation System, is designed to ensure that franking credits attaching to dividends received by trustees are passed through to beneficiaries who derive benefits from the trustee having received the dividends. Subdivision 207-B is generally applicable to events that occurred on or after 1 July 2002.

The Commissioner understands that for the 2009-10 and earlier income years taxpayers may have relied on TR 92/13 as a guide to how the Commissioner would seek to apply Subdivision 207-B. Returns reasonably prepared on that basis will not be disturbed."

The Statement lists a number of issues which the Commissioner believes remain unresolved after Bamford. The Statement says that the Commissioner will consult with interested practitioners on the prioritisation and resolution of all these issues including, where appropriate, as part of his usual processes regarding the making of public rulings.

On the same day (2 June 2010), the ATO issued Practice Statement Law Administration PS LA 2010/1 entitled "Approach to cases involving Division 6 of Part III of the Income Tax Assessment Act 1936". The purpose of the Practice Statement is to "advise staff of the approach to be taken in respect of compliance activities (including assessments, administrative penalties and interest charges), rulings, objections and appeals involving Division 6".


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