Section 255 notices requiring a company to retain out of Canadian currency sufficient funds to meet a taxpayer’s Australian income tax liability were ineffective.
The taxpayers (RCF IV and RCF V) were 2 limited partnerships formed in the Cayman Islands. They owned shares in an Australian company (Talison), which they sold to a third party. The amounts payable to the taxpayers were denominated in Canadian currency and were payable out of a Canadian bank account maintained by Talison.
In March 2013, the Commissioner issued notices of assessment to the taxpayers. The tax liabilities were denominated in Australian currency. The Commissioner also issued notices under s 255 of the ITAA 1936 requiring Talison, as “a person having the receipt control or disposal of money belonging to” the taxpayers, to retain from that money (ie the Canadian currency), and to pay to the Commissioner, the amounts the taxpayers were assessed to pay. The relevant amounts were expressed in Australian currency.
The Federal Court held that the s 255 notices were ineffective as Talison did not have the receipt, control or disposal of any Australian currency belonging to the taxpayers from which to retain sufficient Australian currency to pay the tax payable by them.
Further, s 255, or any other provision of the income tax legislation, did not authorise the conversion of the Canadian currency into Australian currency.
The Court also held that the word “money” in s 255(1) is confined to Australian currency and does not include foreign currency.
(Resource Capital Fund IV LP & Anor v FCT & Anor [2013] FCA 801, Federal Court, Edmonds J, 15 August 2013.)
[FJM Note: despite it being Talison’s shares that were sold, it does seem that it did hold the share sale proceeds, in Canadian currency, for the Canadian vendors. It was found as a matter of fact that Talison didn’t have the necessary control of these funds for the Canadian taxpayers to activate s255. But it was also found that s255 could not have any operation over Canadian currency (to discharge an Australian tax liability – expressed in Australian dollars – as it must be). Section 255 says that where a person has “receipt control or disposal of money belonging to a non-resident” then it shall pay the amount of non-resident’s tax to the Commissioner, when required by the Commissioner.]
[LTN 160, 20/8/13]