Commissioner for Taxation of the Commonwealth of Australia v. Lutovi Investments Pty Ltd [1978] FCA 53

Commissioner for Taxation of the Commonwealth of Australia v. Lutovi Investments Pty Ltd [1978] FCA 53

To constitute a share as 'redeemable' under s.44(2D)(b), there must be an agreement or arrangement between two or more persons with the relevant purpose of enabling the company, by means including reduction in capital, to pay money to shareholders. On the facts, the issuance of bonus shares from the assets revaluation reserve did not occur pursuant to such an arrangement and did not enable the return of capital, as the company possessed independent power and surplus funds to effect the reduction in capital. Thus, the bonus shares could not be regarded as redeemable under the statutory definition, and the taxpayer was entitled to exclude the value of such shares from assessable income.

Parties
Appellant (respondent): THE COMMISSIONER FOR TAXATION OF THE COMMONWEALTH OF AUSTRALIA; Respondent (appellant): LUTOVI INVESTMENTS PTY. LIMITED
Jurisdiction
Australia
Judgment Date
07 July 1978
Procedural Posture
Appeal / On Appeal From the Supreme Court of New South Wales Administrative Law Division
Outcome
Appeal dismissed with costs.
Legal Topics
Income Tax, Dividends, Bonus Shares, Asset Revaluation Reserve, Reduction of Capital, Arrangement Under S.44(2 D)(b) Income Tax Assessment Act 1936
Taxation Law Income Tax Dividends Bonus Shares Asset Revaluation Reserve Reduction of Capital Arrangement Under S.44(2 D)(b) Income Tax Assessment Act 1936

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Parties

THE COMMISSIONER FOR TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Appellant (respondent)

LUTOVI INVESTMENTS PTY. LIMITED

Respondent (appellant)

Procedural Posture

Appeal / On Appeal From the Supreme Court of New South Wales Administrative Law Division

Legal Issues

  1. 1 Whether the 1,269,336 bonus shares issued to Lutovi Investments Pty. Limited by I.C.D. Limited as fully paid up shares by application of a portion of the assets revaluation reserve are redeemable shares within the meaning of s.44(2)(b)(iii) of the Income Tax Assessment Act 1936, as affected by s.44(2D)(b).
  2. 2 Whether there was an 'agreement or arrangement' to which s.44(2D)(b) applies, and whether such arrangement had the purpose of enabling the payment of money by means of a reduction in capital to the shareholders.

Ratio Decidendi

To constitute a share as 'redeemable' under s.44(2D)(b), there must be an agreement or arrangement between two or more persons with the relevant purpose of enabling the company, by means including reduction in capital, to pay money to shareholders. On the facts, the issuance of bonus shares from the assets revaluation reserve did not occur pursuant to such an arrangement and did not enable the return of capital, as the company possessed independent power and surplus funds to effect the reduction in capital. Thus, the bonus shares could not be regarded as redeemable under the statutory definition, and the taxpayer was entitled to exclude the value of such shares from assessable income.

Court Disposition

Appeal dismissed with costs.

Orders

  • The appeal is dismissed with costs.