22 Feb 11 Decision Impact Statement - FCT v H
The ATO has issued a Decision Impact Statement in relation to the Full Federal Court's decision in FCT v H  FCAFC 128; 2010 ATC 20-218. The case concerned when income tax and general interest charge assessed by an amended assessment are "present legal obligations" for the purposes of calculating a company's net assets and distributable surplus under Div 7A.
The Court considered that the term "obligation" embraces situations outside of a creditor/debtor relationship, and concluded that prior to an assessment, the company had an obligation to pay income tax arising from the operation of the Income Tax Act 1986. That obligation came into existence on 30 June of the year of income in which the income was derived.
The Court also held that a person's liability to the GIC accrues on a daily basis as a direct consequence of the fact that tax remains unpaid after the due date. As a consequence, GIC becomes a present legal obligation on each day on which tax that should have been paid remains unpaid.
In contrast, tax shortfall penalty is not a present legal obligation of a company until an assessment of shortfall penalty is made.