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On 1 April 2010, in FCT v Rozman [2010] FCA 324, the Federal Court (Perram J) dismissed the taxpayer's appeal against a decision that a payment by a third party at the direction of a private company of which the taxpayer was a shareholder constituted a deemed dividend for the purposes of s 109C of Div 7A of ITAA 1936. In subsequent proceedings, and before judgment was entered, the taxpayer argued that the Court had failed to deal with two arguments advanced on the taxpayer's behalf. The Court has now considered and dismissed the further arguments, and confirmed its original decision dismissing the taxpayer's appeal.

The taxpayer's first argument, based on s 109T, was in response to an argument that the Commissioner did not ultimately rely on in the proceedings. Consequently, the Court held that it did not need to consider the correctness or otherwise of the taxpayer's argument on this point.

There was also a second submission on s 109T and, in particular, its interaction with s 109C, namely that if s 109C applied to payments by direction, s 109T was otiose, having no work to do. The Court held that this submission was without merit.

The taxpayer's second argument relied on the provisions of s 109Y. Section 109Y limits the amount of a deemed dividend to the amount of the private company's "distributable surplus". The Court held that a conclusion that s 109C extends to payments by direction in no way undermines the operation of s 109Y, contrary to the taxpayer's argument.

FCT v Rozman (No 2) [2010] FCA 387 (Federal Court, Perram J, 23 April 2010).


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