The High Court has refused husband and wife taxpayers special leave to appeal against the decision of the Full Federal Court in Millar v FCT [2016] FCAFC 94.
The Full Federal Court had confirmed the Commissioner’s assessments, based on certain ‘back-to-back’ loans being shams, such that their superannuation fund had actually paid a benefit directly to the taxpayers, in breach of the ‘cashing restrictions’ in Part 6 of the Superannuation (Industry) Supervision Regulations. A benefit taken in breach of the superannuation standards is assessable under s304-10 of the Income Tax Assessment Act 1997 (ITAA 97). The scheme appears to be one that would have been caught by the ‘general anti-avoidance provisions’ in Part IVA of the Income Tax Assessment Act 1936. Quite why the case was put as a ‘sham’ is not entirely clear (to me, at least).
Many thought that the High Court might give leave in this case, to revisit one of their previous decisions, which constrained at least the majority in the Full Federal Court case. This was their decision in the Raftland case [2008] HCA 21, which found that ‘sham’ existed without the taxpayers actually intending their documents would not have effect according to their terms (ie. the Court held that subjective deceit need not be involved for a finding of ‘sham’). The Court found that ‘sham’ existed on the basis of a kind of constructive intention.
The problem, for the Commissioner, was that the Millars had no real subjective intention when they executed the loan documents. The notorious Mr Vanda Gould arranged everything, including the documents, and effectively just said: ‘sign here’. The Millars subjective understanding was that they would get a loan of about $600,000 from the Samoan company, secured by their superannuation fund’s loan deposit, of a similar amount. This was, of course, the broad thrust of the ‘back-to-back’ loan documents the Millars signed. As a result, Mr Justice Logan applied the traditional view of sham, and found against the Commissioner.
However, the majority (Davies and Pagone JJ), found for the Commissioner, influenced by the High Court’s binding decision in Raftland. They looked at many untidy aspects of the back-to-back loan arrangement, and without the benefit of any evidence from Vanda Gould, concluded that the Millars could not ‘disprove’ sham (which the Millars had to do to discharge the ‘taxpayers’ onus’).
After the High Court refused to give the taxpayer leave to appeal, the jurisprudence around ‘sham’ remains awkward (for tax purposes at least). Still, it was probably a just result, to have the taxpayers ultimately fail, as this would probably have been the result under Part IVA also. The High Court may have also been influenced by the confounding effect of the taxpayer’s onus (ie. that the taxpayers had to ‘disprove’ sham to win).
[FJM] [High Court – 11 Nov 2016, item 13] [LTN 219, 11/11/16]