The AAT has confirmed amended assessments to include “special income” issued by the Commissioner to a taxpayer for the 2005 and 2006 income years as correct.
The background facts were complex, but essentially involved the taxpayer (a trustee company of a self-managed super fund), a Unit Trust, and an individual who was a director of the taxpayer, a member of the SMSF, a director of the trustee company of the Unit Trust, and a unit holder of the Unit Trust. The Tribunal was presented with numerous details of the units held by the SMSF and the individual in the 2005 and 2006 income years.
The Commissioner contended the SMSF was subject to the special income provisions in s 273 of the ITAA 1936 (as they then stood) for the 2005 and 2006 income years. The Tribunal found s 273(6) did not apply as the income derived by the SMSF in its capacity as a beneficiary of the Unit Trust was by virtue of holding a fixed entitlement to the income. However, the Tribunal found both limbs of s 273(7) had been satisfied and therefore the income was to be regarded as special income. That is, the Tribunal found the SMSF derived the fixed entitlement under an arrangement where the parties were not dealing with each other at arm’s length, and the amount of the income derived by the SMSF as a beneficiary of the Unit Trust was greater than might have been expected to have been derived if it had been dealing with the Unit Trust at arm’s length. In addition, the Tribunal was of the view that the unit holdings and distribution entitlements of the SMSF as provided by the ATO should be amended (which will effectively increase the 2006 tax liability).
The taxpayer contended a disposal of a farm property under a contract of sale dated 19 September 2005 but settled on 4 July 2011 should be brought into account in the 2012 income year. However, the Tribunal held the capital gain was properly brought into account in the 2006 income year. It said the disposal “was deemed to have occurred at the time the terms contract was executed”.
The Commissioner had reduced the penalty imposed on the tax shortfall from 50% to 25%. The Tribunal affirmed that decision finding the circumstances of the case did not warrant remission of the penalties.
(AAT Case [2012] AATA 527, Re The Trustee for MH Ghali Superannuation Fund and FCT, AAT, Ref No: 2010/4923 and 2010/4924, Fice SM, 10 August 2012.)
[LTN 156, 14/8]