The ATO has released its Decision Impact Statement (DIS) in
relation to the Full Federal Court's decision in FCT v
H  FCAFC 128; 2010 ATC 20-218.
The focus of this case is whether income tax and the general
interest charge (GIC) assessed by an amended assessment constitute
a "present legal obligations" when calculating a
company's net assets and distributable surplus under
Division 7A. The relevance of this is that the distributable
surplus is the 'cap' or limit on the amount to be
treated as a deemed dividend under Division 7A.
Broadly, the distributable surplus of a company is worked out as
the net assets less the paid up capital of a company. The net
assets of a company is required to be determined as the amount by
which the company's assets exceed the sum of the
company's various liabilities including the present legal
obligation it has to third parties.
The Court considered that the term "obligation"
includes situations outside of a creditor/debtor relationship and
concluded that the company in fact did have an obligation to pay
income tax, arising from the operation of the Income Tax Act 1986,
prior to an assessment. This obligation came into existence on 30
June of the income year in which the income was derived.
The Court also held that the company's liability to GIC
accrues on a daily basis as a consequence of the fact that the tax
remains unpaid after the due date. Therefore, the GIC becomes a
present legal obligation on each day on which the tax remains
Of a lesser consequence was the shortfall interest charge (SIC)
amount, where it was found that the SIC shortfall penalty is not a
present legal obligation until the time that an assessment of the
shortfall penalty has been made.
The implications of this case (and the ATO's acceptance
of the judgement) will give taxpayers greater clarity on how to
quantify and limit their exposure to the application of Division
7A. Currently, the ATO is reviewing TD 2007/28 and TD 2008/28 to
accord with the decision of the Full Federal Court.
Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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