The Federal Court has held that a resolution to distribute a $14m capital gain from a family trust was “special income” derived by a self-managed superannuation fund (SMSF) in the 2004 tax year under former s 273(6) of the ITAA 1936.
The taxpayer, as trustee of the SMSF, sought to distinguish the finding in Allen v FCT [2011] FCAFC 118; (2011) 195 FCR 416 where the Full Federal Court had ruled that “income derived” in s 273(7) refers to both statutory income (eg net capital gains) and income according to ordinary concepts. The taxpayer claimed that, unlike in Allen’s case, no decision had been made by the trustee of the family trust to actually pay or apply any amount of capital, so it could not be said to be “derived” by the SMSF in the sense referred to in s 273.
In upholding the amended assessment, the Federal Court said it was bound by Allen to conclude that “income” in s 273 means assessable income and therefore includes both ordinary and statutory income (eg net capital gains). The Court considered that “derived”, for the purposes of “income derived” in s 273(6), must accommodate how a particular type of assessable income (which can form part of the net income of the trust estate) is included in the assessable income of a beneficiary pursuant to s 97 of the ITAA 1936. The Court considered that the effect of s 97 is that the assessable income of a beneficiary of a trust estate includes so much of that share of the net income of the trust estate as is attributable to a beneficiary. That being so, the Court said “derived” extends to include “attributed to” or “imputed to”. It is enough that the beneficiary is presently entitled to that share, the Court said. As a result, the Court upheld the amended assessment which treated the $9.3m net capital gain as “special income” of the SMSF (which is taxable at 47% instead of 15%), and increased the tax payable by the SMSF by $3.1m.
(SCCASP Holdings as trustee for the H&R Super Fund v FCT [2012] FCA 1052, Federal Court, Logan J, 26 September 2012.)
[LTN 188, 27/9]