Thomas v Commissioner of Taxation [2015] FCA 968

FEDERAL COURT OF AUSTRALIA

Thomas v Commissioner of Taxation [2015] FCA 968 Citation: Thomas v Commissioner of Taxation [2015] FCA 968

Parties: MARTIN ANDREW THOMAS v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA THOMAS NOMINEES PTY LIMITED (ACN 010 049 788) v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA MARTIN ANDREW PTY LTD (ACN 063 993 055) v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA THOMAS NOMINEES PTY LIMITED (ACN 010 049 788) v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA MARTIN ANDREW THOMAS v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA MARTIN ANDREW THOMAS PTY LTD (ACN 063 993 055) v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA THOMAS NOMINEES PTY LTD (ACN 010 049 788) v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

File number(s): QUD 274 of 2012 QUD 275 of 2012 QUD 276 of 2012 QUD 283 of 2012 QUD 284 of 2012 QUD 285 of 2012 QUD 325 of 2013

Judge(s): GREENWOOD J

Date of judgment: 31 August 2015

Catchwords: TAXATION – consideration of the construction and operation of Division 207 ("Effect of receiving a franked distribution") of Part 3-6 of the Income Tax Assessment Act 1997 (Cth) (the "1997 Act") – ("The imputation system") TAXATION – consideration particularly of when a franked distribution flows indirectly to a beneficiary of a trust – s 207-50(3) – consideration of the notion of a "share amount" – s 207-50(3)(b) – consideration of the four integers of s 207-35(3) giving rise to a requirement to include in the beneficiary's assessable income so much of the franking credit amount on franked dividends made to the trustee as equals the beneficiary's "share of the franking credit on the distribution" – consideration of s 207-55 and particularly Item 3 of the table at s 207-55(3) – consideration of s 207-57 and the formula in that section and s 207-45 TAXATION – consideration of the nature of franking credits – consideration of whether franking credits are regarded as "ordinary income" or receipts "in the nature of ordinary income" – consideration of whether franking credits could be regarded as income under the provisions of the relevant trust deed as "categories of income" under that deed – consideration of whether franking credits, if not income according to the terms of the deed or income otherwise, represent something of significant potential commercial value to a beneficiary – consideration of whether the trustee has a duty to consider the way in which franked distributions might need to be addressed so as to enable a beneficiary to properly take advantage of tax offsets according to the integrated operation of Div 207 of the 1997 Act TAXATION – consideration of the concepts of a "franked distribution" made to the trustee of a trust, distributions by the trustee to or amongst beneficiaries and whether franked dividends might be "separately streamed" to or amongst beneficiaries TAXATION – consideration of whether a resolution which purports to distribute "franking credits" operates as a proxy for a distribution of the franked dividends to which the franking credits are attached – consideration of the relationship between franked dividends and franking credits – consideration of the notion that franking credits are stapled to franked dividends – consideration of whether resolutions which might purport to allocate the benefits of potential "tax offset entitlements" are to be regarded as a proxy for the distribution of franking credits which in turn operate as a proxy for distribution to the relevant beneficiaries of the franked dividends to which the franking credits are necessarily linked or stapled TAXATION – consideration of the relationship between s 97(1)(a) of the Income Tax Assessment Act 1936 (Cth) (the "1936 Act") and s 95(1) of the 1936 Act – consideration of the s 95(1) notion of net income of the trust estate and the proportionate relationship required between s 97(1)(a) and s 95(1) – consideration of s 99A of the 1936 Act and the notion of whether a beneficiary is presently entitled by operation of s 101 of the 1936 Act for the purposes of s 97(1)(a) of the 1936 Act – consideration of the principles derived from Commissioner of Taxation v Bamford (2010) 240 CLR 481 and Federal Commissioner of Taxation v Totledge Pty Ltd (1992) 60 FLR 149 and related authorities TAXATION – consideration of whether estoppel by convention operates so as to attribute a construction to the operation of a trust deed which is inconsistent with the terms of the trust TAXATION – consideration of the principles deriving from Cridland v Federal Commissioner of Taxation (1997) 140 CLR 330 and particularly at 341 and Federal Commissioner of Taxation v Noza Holdings Pty Ltd (2012) 201 FCR 445 at [68] having regard to the discussion at [57] to [67] TAXATION – consideration of whether the Commissioner is bound to accept facts found by reason of orders made and reasons for judgment given in proceedings in the Supreme Court of Queensland in relation to the construction of resolutions made by the trustee and the terms of the trust deed in issue in the proceedings in the Federal Court of Australia – consideration of the nature of proceedings in which the trustee sought directions and declarations under s 96 of the Trusts Act 1973 (Qld) as to the construction of the resolutions passed by the trustee – consideration of the orders made by the Supreme Court of Queensland which give directions and constitute declarations as to the construction of the resolutions by reference to "the proper construction of the Income Tax Assessment Act 1997 (Cth)" – consideration of whether the Commissioner is bound by such orders – consideration of whether the Commissioner charged with a statutory responsibility for the administration and operation of the income tax laws of the Commonwealth is entitled to call into question matters the subject of orders and determinations of the Supreme Court of Queensland – consideration of the principles identified in Executor Trustee and Agency Co v Deputy Federal Commissioner of Taxes (South Australia) (1938) 62 CLR 545)and in particular the observations of Lathan CJ at pp 561 and 562, Dixon J at pp 569 and 570 and McTiernan J at p 572 and related authorities