BBlood Enterprises Pty Ltd v Commissioner of Taxation

1. The interlocutory application filed on 6 October 2022 be dismissed.
2. The applicant pay the respondent's costs of the interlocutory application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THAWLEY J: 1 Orders and reasons in two proceedings were delivered on 19 September 2022: BBlood Enterprises Pty Ltd v Commissioner of Taxation [2022] FCA 1112. The two proceedings were: VID 114 of 2020 and VID 247 of 2021. In these reasons I adopt the abbreviations used in [2022] FCA 1112. 2 In VID 247, the principal issue was whether BE Co was deemed not to have been presently entitled to the income of the Illuka Park Trust by operation of s 100A of the ITAA 1936. The applicant in that proceeding, the Trustee of the Illuka Park Trust, contended that s 100A did not apply. That argument was unsuccessful. 3 In VID 114, the principal issue was whether there was a dividend stripping operation within the meaning of s 207-155 of the ITAA 1997. This issue arose because the Commissioner relied, in the alternative to his position in VID 247, on an assessment issued to BE Co. If s 100A did not apply to switch off BE Co's present entitlement, then the Commissioner relied on this assessment to tax BE Co on the basis that the "Illuka Park Steps" constituted a scheme that was by way of, or in the nature of dividend stripping, or had substantially the effect of such a scheme. It was held that the Commissioner's position was correct. 4 By an interlocutory application filed on 6 October 2022 in VID 114, the applicant (BE Co) sought the following orders: 1. Set aside order 1 made on 19 September 2022 and, in its place, order that the application be allowed and that the Respondent amend the Applicant's assessment to give effect to the Court's reasons for decision. 2. Costs. 5 The parties have filed written submissions in respect of the interlocutory application and it was agreed that the application should be dealt with on the papers. 6 Section 14ZZP of the TAA 1953 provides: Order of court on objection decision Where a court hears an appeal against an objection decision under section 14ZZ, the court may make such order in relation to the decision as it thinks fit, including an order confirming or varying the decision. 7 The objection decision the subject of the appeal in VID 114 was one in which the Commissioner decided that the notice of assessment issued to BE Co, being the assessment relied upon as an alternative to his primary position that s 100A applied, was not excessive on the basis contended by the applicant, namely that the relevant events did not comprise a dividend stripping operation within the meaning of s 207-155 of the ITAA 1977. BE Co appealed to this Court against that objection decision by initiating a Part IVC appeal, obliging the Commissioner to incur expenses in litigating that issue. 8 The Commissioner's position that the relevant scheme was a dividend stripping operation was upheld on appeal. The appeal was therefore dismissed by the order now sought to be set aside. 9 It is true that, if s 100A of the ITAA 1936 applied such that BE Co was not presently entitled to the income of the Illuka Park Trust (as is the case), the alternative assessment was necessarily excessive. No-one has ever contended otherwise. That was not the issue which was litigated and it was not the issue about which BE Co was dissatisfied in lodging its appeal from the objection decision. 10 Section 14ZZP permits the Court to make such order in relation to the objection decision the subject of the Part IVC appeal as it thinks fit, including an order confirming or varying the decision. The assessment the subject of the objection decision was not shown to be excessive on any of the specific bases the subject of the objection which had been made. There was no dispute about the assessment the subject of VID 114 being excessive if s 100A applied in relation to the assessment the subject of VID 247. There is no issue about the Commissioner seeking to recover on the assessment the subject of VID 114. There is no suggestion that the Commissioner will not take whatever step is appropriate to give effect to the Court's reasons for judgment in [2022] FAC 1112. BE Co was wholly unsuccessful on the arguments it advanced about excessiveness. The order made on 19 September 2022 should not be disturbed. 11 As to costs in VID 114, even if I had allowed BE Co's appeal on the basis advanced on this interlocutory application, I would have ordered BE Co to pay the Commissioner's costs. There is no sensible basis to order the Commissioner to pay the applicant's costs in a case in which the applicant lost on every issue argued. I make the following orders: (1) The interlocutory application filed on 6 October 2022 be dismissed. (2) The applicant pay the respondent's costs of the interlocutory application. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Thawley.