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19 Feb 14 High Court refuses super fund special leave in "special income" case - SCCASP Holdings

The High Court (French CJ and Crennan J) has refused the taxpayer, the trustee of a superannuation fund ("the fund"), special leave to appeal from the decision of the Full Court of the Federal Court in SCCASP Holdings Pty Ltd as trustee for the H&R Super Fund v FCT [2013] FCAFC 45 (10 May 2013).

The fund was a beneficiary of a discretionary trust. In the relevant year, the discretionary trust derived both ordinary income and a capital gain. It resolved to distribute the whole of the ordinary income to the fund (but not the capital gain). By virtue of the combined operation of s 97 and the definition of net income in s 95, the capital gain was also included in the assessable income of the fund. However, the taxpayer argued that because it had not received the capital gain, and had no entitlement to it, it was not "income derived" by the fund within the meaning of the former s 273 ITAA 1936. If it applied (contrary to the taxpayer's argument), s 273 characterised such income as "special income" and imposed tax at the rate of 45%.

In dismissing the taxpayer's appeal, the Full Court relied on the earlier decision of the Full Court in Allen as Trustees for the Allen’s Asphalt Staff Super Fund v FCT [2011] FCAFC 118 (7 September 2011), where the Court said:

"As to whether the income can be said to have been 'derived', in FCT v Sun Alliance Investments Pty Ltd (in liq) [2005] HCA 70; (2005) 225 CLR 488 at [42] the High Court stated that the first step in ascertaining the meaning of 'derived' is to refer to the thing that is said to be derived. In this case the distribution was received by the Super Fund by virtue of its 100% entitlement to the income of the Fixed Trust. Pursuant to s 97 of the ITAA 1936, the beneficiary of a trust estate is treated as having derived income equivalent to its share of the s 95 net income. As we have seen, this share will include an amount attributable to a net capital gain which is included in the assessable income."

The taxpayer in Allen unsuccessfully sought special leave to appeal to the High Court from the decision of the Full Court.

In dismissing the taxpayer's application for special leave in this case, French CJ said:

"As with the application for special leave in Allen v FCT [2012] HCATrans 25, the application for special leave in this case involves a question whether the construction of the relevant provision as applying to statutory income of the applicant is correct. As in that case, and in accordance with established principles, the Full Court adopted the construction which it did by reference to text, purpose and context. Its decision, in our opinion, is unattended with sufficient doubt to warrant the grant of special leave. Special leave will be refused with costs."

For a copy of the transcript of the special leave application, go here

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