Last week Justice Thawley of the Federal Court handed down his decision in BBlood Enterprises Pty Ltd v Commissioner of Taxation  FCA 1112, the most recent case tried in the ATO's focus on section 100A ITAA36.
Although the taxpayer was not successful on the facts in the case, amongst other elements of section 100A the judgment addresses the question of what is an 'ordinary family or commercial dealing'.
The interpretation of section 100A, and particularly what is excluded as an ordinary family or commercial dealing remains at issue not only between the taxpayer and the ATO, but between the Judiciary and the ATO after the ATO issued its draft tax ruling TR 2022/D1 contradicting the findings of Justice Logan in Guardian before the appeal in that matter was even heard.
Justice Thawley landed close to Justice Logan's position Guardian (in December 2021) on the meaning of an ordinary family or commercial dealing, specifically what is 'ordinary', without using the language with which the ATO took issue with in TR 2022/D1 (issued in February 2022).
It will be very interesting to see whether the ATO amends its draft ruling following Justice Thawley's decision, in which he made findings of section 100A beyond the meaning of ordinary family or commercial dealing, or waits for the finding of the Full Federal Court in Guardian (heard late last month). We do not hold out hope that the ATO will stanch the bleeding before the Full Court hands down its decision.
The current findings of Justice Thawley and Justice Logan, and the opinion of the ATO are:
|Finding of Justice Thawley||Finding of Justice Logan||Opinion of the ATO|
|A dealing might not be an "ordinary family or commercial dealing" if the dealing, or the agreement which arose out of the dealing, is contrived or artificial or involved more than was required to achieve the relevant objective. The fact that the objective is achieved through numerous transactions, or that the transactions are complex, is not of itself sufficient to show that the dealing is not "ordinary". Many ordinary commercial transactions are effected by an interlocking set of documents that might be characterised as complex. Likewise, agreements entered in the course of a family dealing can be complex||Read in context, the adjective "ordinary" in "ordinary family or commercial dealing" has particular work to do. It is used in contradistinction to "extraordinary". It refers to a dealing which contains no element of artificiality. This is confirmed by reference to the relevant explanatory memorandum, where one finds reference to addressing the mischief of specially introduced beneficiaries having a fiscally advantageous status.||A dealing is not an ordinary family or commercial dealing merely because it is commonplace or involves no artificiality.|
|On the other hand, if the dealing, or the agreement which arose out of the dealing, is overly complex, involving more than is needed to achieve the relevant objective, or includes additional steps which are not necessary to achieving the objective, then the dealing might more readily be seen as not being "ordinary".||(Guardian AIT Pty Ltd (as trustee for the Australian Investment Trust) v Commissioner of Taxation  FCA 1619, at ).||(TR 2022/D1, at ).|
|(BBlood Enterprises Pty Ltd v Commissioner of Taxation  FCA 1112, at -).|
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