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06 Nov 12 Premiums paid to foreign resident insurer not assessable income in Australia - Crown Insurance Services Ltd

The Full Court of the Federal Court has, by majority, dismissed the Commissioner’s appeal from the decision of the AAT in Re Crown Insurance Services Ltd and FCT [2011] AATA 847.

The majority decision was not concerned with the merits of the case. Rather, the court held that the appeal was incompetent, in that the sole question to be determined on the appeal was a question of fact, which meant that, under s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (which provides that a party to a proceeding before the AAT may appeal to the Federal Court only “on a question of law”), the court had no jurisdiction to hear the appeal.

The question that the AAT had to determine was whether premium income that was paid to the taxpayer, Crown Insurance Services Ltd, was assessable income within the meaning of s 6-5(2) or (3) of the ITAA 1997. It was accepted on appeal that the taxpayer was not a resident of Australia.

The AAT found, as a matter of fact, that the premium income was not sourced either directly or indirectly from Australia. Instead, the AAT found that the source of the taxpayer’s income was the insurance contracts with member companies, which were made in Vanuatu and were wholly performed in Vanuatu. The sole question on appeal, therefore, was whether the taxpayer, being a foreign resident, received premium income directly or indirectly from an Australian source during the relevant year, which, because of the provisions of s 6-5(3)(a), would be assessable income.

In the view of the majority in the Federal Court (Lander and Foster JJ), this was a question of fact, and the court had no jurisdiction to hear the appeal. The result is that the AAT decision in the taxpayer’s favour stands.

Jessup J, who dissented, decided that the question raised on appeal was a question of law, being, in substance, whether the facts found by the AAT in the present case necessarily fell within the terms of s 6-5(3)(a). Jessup J went on to find, on the facts, that the premium income derived by the taxpayer was indirectly derived from an Australian source, and was therefore within s 6-5(3)(a).

The judgments in this case contain much detailed discussion of the often difficult subject of the distinction between questions of law, questions of fact and questions of mixed fact and law.

FCT v Crown Insurance Services Ltd [2012] FCAFC 153 (Lander, Jessup and Foster JJ, 2 November 2012).


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