20 Mar 1212 Decision Impact Statement - Leighton
The case concerned whether the taxpayer (Mr Leighton), a non-resident, was liable to tax as a trustee under former s 98(3) of the ITAA 1936 on income from trading Australian shares through stockbrokers in Australia. The Full Federal Court (Edmonds, Gilmour and Logan JJ) in a joint judgment held that Mr Leighton was not so liable.
Mr Leighton, a non resident of Australia for tax purposes residing in Monaco, was engaged in share trading activities (via Australian stockbrokers) involving the buying and selling of shares in Australian public companies. The share trading was through accounts held by two foreign resident companies of which he was a director (Salina Investments Ltd ("Salina") and Kolton Holdings Limited ("Kolton")).
Each of Salina and Kolton had share trading accounts with a number of Australian sharebrokers. Leighton had authority to provide buy and sell instructions on behalf of Salina and Kolton to the brokers. Shares were purchased with funds deposited by Salina and Kolton in an Australian Westpac bank account in Leighton's name. The shares were held by an Australian bank custodian. The proceeds of sale of shares were deposited in the Westpac bank account in Leighton's name and remitted to Salina and Kolton.
The Full Federal Court found on the facts of the case the share proceeds deposited by the brokers into the Westpac Bank account in Mr Leighton's name represented the realisation of income already derived by Salina and Kolton. It was the companies themselves that derived income from the sale of the trading stock represented by the shares irrespective of whether they received payment, or a third party such as Mr Leighton received payment on their behalf. Accordingly, the Full Federal Court found that while the proceeds, upon being deposited into the Westpac Bank account, were impressed with a trust in favour of Salina and Kolton, those proceeds did not comprise the income of a trust estate.
The Decision Impact Statement states that:
"The ATO accepts that once it was concluded that Salina and Kolton were each carrying on a business of trading in shares, the shares being trading stock of those businesses, and that the companies derived income from the sale of that stock; it followed that the income would not also be income of a trust estate on which former s98(3) would operate. If instead in a particular case it were to be concluded as a matter of fact, relevant shares were assets held on trust such that the proceeds of any sale of the shares were properly characterised as the income of a trust, in the Commissioner's view the outcome would be different."