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11 Oct 12 High Court hears appeal in s 177EA Commonwealth bank case - Mills

On 10 October 2012, the High Court (French CJ, Hayne, Kiefel, Bell and Gageler JJ) heard the taxpayer's appeal from the decision of the Full Federal Court in Mills v FCT [2011] FCAFC 158 (8 December 2011).

In that decision, the Full Federal Court held, by majority (Dowsett and Jessup JJ, Edmonds J dissenting), that s 177EA of Part IVA of ITAA 1936 applied to securities issued by the New Zealand branch of the Commonwealth Bank, such that the Commissioner was entitled to make a determination under s 177EA(5)(b) that no imputation benefits arose in respect of a distribution that was made to the taxpayer.

The relevant securities (PERLS V) consisted of unsecured subordinated notes which were regared as equity interests for Australian tax purposes, and the distributions made in respect of them were regarded as non-deductible non-share dividends that were potentially frankable for Australian tax purposes. However, the distributions were deductible against New Zealand income for New Zealand tax purposes.

The question before the Full Federal Court was whether, having regard to the relevant circumstances of the scheme, it would be concluded that one of the persons who entered into or carried out the scheme did so for a purpose (whether or not the dominant purpose, but not including an incidental purpose) of enabling the taxpayer to obtain an imputation benefit, as required by s 177EA(3)(e). The majority held that it would be so concluded, with the result that s 177EA applied to deny the imputation benefits.

The High Court reserved its decision.

For a copy of the transcript of the High Court hearing, go here


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