Jozef Imrich, name worthy of Kafka, has his finger on the pulse of any irony of interest and shares his findings to keep you in-the-know with the savviest trend setters and infomaniacs.
''I want to stay as close to the edge as I can without going over. Out on the edge you see all kinds of things you can't see from the center.''
-Kurt Vonnegut
The High Court has granted the Tax Office an appeal in a dispute over the taxation of family trusts, placing a cloud over taxpayers’ ability to claim around $1 billion in refunds.
In April this year, the full bench of the Federal Court unanimously ruled in favour of Melbourne accountant Steven Bendel, who maintained that certain paymentsowed by a trust to a corporate beneficiary should not be treated as loans for the purposes of Division 7A of the Tax Act, contrary to the ATO’s long-held view.
If the High Court overturns the Federal Court decision, the almost 1 million family trusts in Australia that may have had their assessments amended to increase their tax since 2009 would be prevented from clawing back around $1 billion in tax.
“[The High Court] has said in the past that in most tax matters the full Federal Court will be the final court of appeal,” said BDO tax partner Mark Molesworth.
Arnold Bloch Leibler tax partner Paul Sokolowski, who represents Bendel, said: “Our client welcomes the High Court’s consideration of this issue for an ultimate determination.
“In the meantime, there will continue to be elements of uncertainty around how the [tax] commissioner is applying the provisions more broadly, pending the outcome.”
The case centres on whether unpaid trust entitlements (known as unpaid present entitlements) constitute a loan under Division 7A, a tax provision to ensure tax is paid on profits flowing from a company to shareholders and related parties.
An unpaid present entitlement arises when a trustee passes resolutions resulting in a corporate beneficiary becoming entitled to income of the trust, but where that entitlement is not actually paid.
The entitlement is taxed at the corporate tax rate, but since 2009, the ATO has maintained that the unpaid present entitlement represents a loan from the corporate beneficiary back to the trust, and therefore additional tax under Division 7A should apply.
The High Court appeal is not likely to take place until the final quarter of this year or the first quarter of 2026.
The big stories, best reads and expert advice hand picked and delivered to your inbox.
Michelle Bowes writes about personal finance from our Sydney newsroom. She has been a business journalist for 25 years and is the author of Money Queens: Rule your Money, an award-winning personal finance book for teenage girls.Email Michelle at michelle.bowes@afr.com
