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23 Oct 13 Section 255 notice can extend to foreign currency - Resource Capital Fund IV LP

The Full Court of the Federal Court (Allsop CJ, Gordon and Jagot JJ) has upheld the Commissioner's appeal from the decision of Edmonds J in Resource Capital Fund IV LP v FCT [2013] FCA 801.

Edmonds J held that Talison Lithium Ltd ("Talison"), an Australian incorporated company, had no obligation to pay moneys to the Commissioner under notices issued pursuant to s 255 ITAA 1936 because, amongst other things, the word "money" in s 255(1) is confined to Australian currency and does not include foreign currency.

The s 255 notices were issued in respect of moneys that Talison owed to two limited partnerships ("LPs") formed in the Cayman Islands. The amounts were owed under a scheme of arrangment. The Commissioner had issued assessments against the two LPs, denominated in Australian dollars, with a due date for payment of 2 December 2013. The s 255 notices required payment, in Australian dollars, of the amounts assessed to each of the LPs as non-residents.

Under the scheme of arrangement, the amounts payable by Talison to the two LPs were denominated in Canadian currency and were payable out of a Canadian bank account maintained by Talison.

Gordon J (with whom Allsop CJ and Jagot J agreed) said, at para 45:

"Nothing in the text or context of s 255 suggests that the phrase all money due does not extend to debts due by the controller [in this case, Talison] to the non-resident if those debts are denominated in foreign currency: see [Deputy Commissioner of Taxation v Conley (1988) 88 FCR 98] at 99. Indeed, if s 255 was so limited, the resulting operation of the provision would be impractical, if not absurd: [Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355] at [69]-[71] and [96]-[99]. The operation of the provision would depend upon the currency which the controller and the non-resident taxpayer had chosen as the money of account between them. The conclusion that s 255 is not to be limited by excluding debts denominated in a foreign currency is further supported by the subject matter of ss 255 and 256. Sections 255 and 256 are both concerned with non-resident taxpayers. Section 256 is concerned with royalty payments and expressly provides that s 255 applies to payments of royalty to a non-resident taxpayer. There is nothing to suggest that the phrase 'money as or by way of royalty to a non-resident' in s 256 is to be limited to payments where the amount to be paid is denominated in Australian currency."

The obligation on Talison as controller of moneys due to the non-resident taxpayer was described by Gordon J as follows at para 49:

"The fact that the money which the controller retains may be in foreign currency does not affect or change the way in which the section operates. As the Commissioner submitted, if the controller’s liability is to pay the non-resident taxpayer in foreign currency, then the controller is authorised to retain so much of that foreign currency as is sufficient to pay the tax debt in Australian dollars. The controller upon receipt of a notice under s 255 must retain money sufficient to pay the tax debt notified to it. The controller is not authorised or required to retain any more. If the money controlled by the controller is denominated in foreign currency, that controller may retain an amount of it sufficient to pay the tax debt. That amount retained may be retained in the foreign currency or it may not. In the end, that is not a determinative factor."

In relation to what happens if there is adverse movement in exchange rates, Gordon J said, at para 51:

"If by the time of payment by the controller in discharge of its personal tax liability under s 255(1)(c), the exchange rate has moved against the Australian dollar with the result that the amount retained by the controller in Australian dollar terms is now less than the amount retained at the time of the receipt of the notice, then the obligations of the controller do not change. The obligation of the controller to retain an amount sufficient to pay the tax remains and, no less importantly, its personal liability for the tax payable by the non-resident taxpayer remains unaltered. It is a personal liability for the tax payable by the non-resident taxpayer to the extent of any amount that the controller has retained, or should have retained, under s 255(1)(b). The amount retained is fixed. That amount in foreign currency, regardless of any change in exchange rates, does not alter. For example, if at the time of the receipt of the notice under s 255, the Australian dollar had parity with the US dollar and a controller was required and authorised to retain US$100 and he did, the amount retained would be US$100. The fact that by the time the tax was due, the Australian dollar had devalued against the US dollar may be put to one side. The amount the controller retained was and remained US$100. The fact that less tax may be paid is ultimately to the detriment of the non-resident taxpayer and the Commissioner. And, that is not surprising. These provisions are facultative and ancillary. They are not to be, and cannot be, construed as the sole method of payment of an outstanding tax liability. The phrase 'should have retained' does not alter that construction. That phrase is, of course, intended to identify the liability to be imposed on a controller who failed, upon receipt of a notice, to do what was required of it - to retain an amount sufficient to pay the tax debt."

The Commissioner's appeal was allowed and the orders of Edmonds J set aside.

FCT v Resource Capital Fund IV LP [2013] FCAFC 118 (22 October 2013).


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