The ATO on Fri 19.7.2013, released a Decision Impact Statement on the Full Federal Court’s decision in FCT v Greenhatch [2012] FCAFC 84.
In that case, the Full Court unanimously upheld the Commissioner’s appeal and overturned a decision of the AAT and held that the assessable income of a beneficiary presently entitled to a discounted capital gain made by the trust was only the discounted proportion of the gain, and not the whole gain as originally decided by the AAT.
The Full Federal Court arrived at this decision, in effect, on the basis that s 97 of the ITAA 1936 drove the process of determining the beneficiary’s share of the net income of the trust (including a capital gain) to be included in their assessable income, and not Subdiv 115-C of the ITAA 1997. The taxpayer’s application to the High Court for special leave to appeal was subsequently refused.
Broadly, the ATO said the case answers questions in relation to the statutory flow-through provisions and their interactions with the general taxing provisions in Div 6 Pt III of the ITAA 1936. It said, in particular it provides the statutory flow-through character mechanism in terms of Subdiv 115-C of the ITAA 1997 (re capital gains made by a trust) as it applied in relation to the 2008 income year. In general terms, the ATO said the approach of the Full Court was consistent with the propositions that, in absence of any specific rules elsewhere in the Tax Act, the proportionate share of the net income of a trust, that is included in the assessable income of the beneficiary under s 97 of the ITAA 1936, has no character beyond that inherent in the share of the net income as being a proportionate share of all the net income.
[LTN 138, 19/7/13]