The court ruled that the appeal raised no question of principle
The High Court has rejected the taxation commissioner’s special leave to appeal application over its dispute with City Beach.
The court ruled in its special leave refusal that the commissioner’s appeal raised no questions of principle and that the commissioner’s prospects of success were low. According to Dentons, which is representing City Beach founders Melville Hicks and Carmelo Ierna, this marks “a further decisive victory.”
The Full Federal Court had previously issued a unanimous judgment in favour of the founders.
The taxation commissioner had challenged City Beach group over the tax treatment of its restructure in 2016, where a new holding company was interpositioned over the City Beach Trust and a selective share capital reduction of $52m. The capital reduction was applied to the discharge of Division 7A loans owed by entities linked to the group’s principals.
Per the commissioner, the transactions were designed to exchange taxable dividends with tax free capital returns. The commissioner aimed to apply anti-avoidance provisions in section 45B and Part IVA of the Income Tax Assessment Act 1936 (Cth).
However, the courts determined that the restructure was undertaken for the repayment of Division 7A loans while retaining the pre-CGT status of specific assets. According to Dentons, the ruling “provides further clarity on the application of Australia’s anti avoidance provisions to private group restructures and the treatment of capital returns used to address Division 7A loans”.
“The High Court’s decision confirms that the positions taken by the taxpayers in the 2016 restructure were sound and consistent with Australia’s taxation laws. We are pleased to have been able to achieve this outcome for our client, particularly given the length of the dispute, and that the courts at every level have reached the same conclusion. The commissioner has also been ordered to pay the taxpayers’ costs”, Dentons lead partner Damien Bourke said.
Bourke worked alongside senior associates Paul Thompson and Natalie Wissa as well as associate Ryan Steele.
