The taxpayer has applied for special leave to appeal to the High Court against the decision in Blank v FCT [2015] FCAFC 154. In a majority decision, the Full Federal Court dismissed the taxpayer’s appeal and confirmed that payments of US$160m he received in instalments following his termination from a company was assessable to him as ordinary income in the income year in which the right to the payments arose. In doing so the majority confirmed that the amount represented “deferred compensation” following the relinquishment of his right to participate in the company’s “profit participation plan” on termination of his employment.
[LTN 6, 12/1/16]
[2015] FCAFC 154 – Catchwords
INCOME TAX – appellant participated in profit participation schemes as employee of company group in foreign countries and in Australia – employee allocated “profit participation units” (PPUs) and equal number of shares in holding company – amount payable to appellant on termination of employment – whether amount assessable as ordinary income or as a capital gain – whether amount deferred compensation – PPUs a mechanism for calculation of amount of profit share to be paid to appellant – conditional executory promise to appellant to pay amount on termination – amount was reward for service as deferred compensation – amount assessable as ordinary income – part of amount withheld for discharge of foreign tax liabilities – when income derived – that part of amount was derived when paid by agreement with appellant to foreign tax authorities – whether income exempt under section 23AG of Income Tax Assessment Act 1936 (Cth) as foreign earnings derived from foreign service – apportionment under section 23AG not possible – whether CGT event C2 happened – cost base of asset if CGT event C2 happened – valuation of appellant’s rights under profit participation scheme – whether prejudice caused to respondent if appellant allowed to re-open case – both appeal and cross-appeal dismissed