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22 Aug 12 Special leave granted in Mills

On 17 August 2012, the High Court (French CJ and Heydon J) granted the taxapayer, Andrew Mills, special leave to 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 appeal is likely to be heard in October 2012.

Mills v FCT [2012] HCATrans 185 (17 August 2012).


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