Di Lorenzo Ceramics Pty Ltd v Commissioner of Taxation [2007] FCA 1006

FEDERAL COURT OF AUSTRALIA

Di Lorenzo Ceramics Pty Ltd v Commissioner of Taxation [2007] FCA 1006

INCOME TAX – deemed dividends – Div 7A of Pt III of the Income Tax Assessment Act 1936 (Cth) – trustee (T) of unit trust purchases land and constructs business premises upon it, borrowing from bank (ANZ) for the purpose – related trading company (C) pays some of the liabilities incurred by T on the purchase and the construction, debiting a "loan account" of T in C's general ledger – advances by ANZ and other amounts payable to T are credited to the loan account – T has no bank account of its own, all payments and receipts on account of T taking place in C's bank account and being reflected in T's running loan account with C – factual dispute as to whether loans by C to T within s 109D of the Act or payments by C to T within s 109C of the Act – whether ss 109C and 109D operated only to deem payments and loans made to persons beneficially to be dividends – whether the loans or payments made by C should be seen to be deemed dividends paid to the unitholders, C and another family company (F). Held: (1) the amounts paid by C were loans to T; (2) Div 7A was not limited to amounts lent or paid to an entity in a non-trustee capacity; (3) Div 7A operated to deem the loans or payments to be dividends paid to T as trustee; (4) Div 6 of Pt III of the Act made the deemed dividends assessable income of the unitholders, C and F, as persons presently entitled to income of the unit trust fund.

Income Tax Assessment Act 1936 (Cth) Pt III, Div 7A (ss 109A – 109ZE) esp ss 109C, 109D, 109J, 109K, 109Z, 109ZD, 109ZE Income Tax Assessment Act 1997 (Cth) ss 2 – 45, 960-100

DI LORENZO CERAMICS PTY LTD v COMMISSIONER OF TAXATION NSD 1231 of 2005 FRESTA INVESTMENTS PTY LTD v COMMISSIONER OF TAXATION NSD 1232 of 2005