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10 Dec 13 Decision Impact Statement - VN Railway

The ATO has published a Decision Impact Statement in relation to the decision of the Federal Court in VN Railway Pty Ltd v FCT [2013] FCA 265; 2013 ATC 20-381. The taxpayer had appealed to the Federal Court from an adverse decision of the AAT.

The case concerned the meaning of "employee" and "eligible employee" (s82AAA and 82AAC of ITAA 1936), and whether a contribution was made to a complying superannuation fund (s82AAC(1)).

The Court held that the AAT was correct in finding no deductions were allowable because the family members who were said to be employees were not employees for the purposes of section 82AAC of ITAA 1936. In reaching its view, the AAT had applied the common law understanding of the term "employee".

The Court also held that in order to attract a deduction the taxpayer must make a contribution, and that the deduction is not allowable even if some form of entitlement exists unless the payment is actually made. The Court held that the contribution must be paid into a complying superannuation fund as required by section 82AAC(1)(b). The Court found that the taxpayer did not make a superannuation payment on behalf of the then director in the 2002-2003 financial year, despite the taxpayer entity recording a book entry which indicated a contribution to the director's superannuation fund as a liability. The Court held that the AAT was therefore correct in finding that no deduction was allowable.

The ATO states its view of the decision as follows:

"The Commissioner considers that the Court's decision confirms that the term 'employee' in sections 82AAA and 82AAC of the the Act, is used in the common law sense of a person who is a party to a contract of service.

Sections 82AAA and 82AAC of the the Act were repealed with effect from the 2007-2008 year of income and later years. The decision of the Federal Court in this matter therefore has limited ongoing application. It is also considered that the legislative scheme set out in Division 290 of the Income Tax Assessment Act 1997, which applies from the 2007-08 income year onwards, has removed any doubt which may have existed over the conditions for deducting an employer contribution and the definition of who is an 'employee' for that purpose."


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