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The decision does not change the Tax Commissioner’s view that schemes that include a trustee’s exercise of discretion to distribute income can attract Part IVA, the ATO says.
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ATO releases decision impact statement on Minerva decision
30 May 2024
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The Tax Office this week issued its response to Minerva Financial Group Pty Ltd v Commissioner of Taxation, a decision by the Full Federal Court of Australia that was unfavourable to the Tax Commissioner.
The decision concerned a series of restructuring activities undertaken ahead of an IPO by a group of financial services businesses referred to as the Liberty Group. Liberty Group, of which the appellant company was a member, was a “non-bank” provider of financial services.
As part of the restructuring process, Liberty Group reorganised into two “silos”: a “trust silo” and a “corporate silo.” While the primary judge found Part IVA did not apply to this split, he ruled it did apply to decisions by the trustee within the trust silo to distribute nearly all income through the trust silo, dedicating only nominal sums to the corporate silo.
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The effect of this restructuring was that only a fraction of the net income of the trust was subjected to a 30 per cent corporate tax rate. Instead, the balance was subjected to a 10 per cent withholding tax rate.
The ATO found that Minerva had obtained a tax benefit from a “scheme” to which Part IVA applied. Accordingly, it issued new assessments to Minerva which included a higher assessable income tax for amounts received between 2012 to 2015.
Notably, the primary judge ruled the use of a stapled structure did not trigger Part IVA given the decision made commercial sense ahead of the IPO.
The Full Federal Court unanimously allowed the appeal, finding that Part IVA did not apply to any of the schemes identified by the ATO. The issue has been remitted to the Tax Commissioner for reconsideration.
In their reasoning, the judges said a Part IVA scheme is “broadly defined” and that a distribution decision made in part due to tax considerations is not necessarily made for the “dominant purpose” of obtaining a tax benefit.
The Full Federal Court, in applying the eight considerations laid out under s 177D(2) of the Income Tax Act found insufficient evidence to support an objective finding that Minerva had restructured for the dominant purpose of obtaining a tax benefit.
In its decision impact statement, the ATO said while the Full Court found that Part IVA did not apply, the ATO said it did so based on a conclusion of the particular facts in this case of a non-bank lender with an “IPO-ready” business structure.
“Accordingly, we do not consider this decision as having any impact on the Commissioner's current advice and guidance,” the Tax Office said.
“The decision does not disturb the Commissioner's long-held view that schemes which include a trustee's exercise of discretion to distribute income can attract the operation of Part IVA.”
The ATO also stressed that determining whether Part IVA applies to such a scheme cannot be resolved by the trustee providing evidence of their purpose.
“It will depend on a consideration of the eight factors collectively applied to the objective facts, to ascertain whether a party to the scheme had the requisite objective purpose that the taxpayer would obtain a tax benefit,” the ATO said.
The ATO said the decision has “no impact on any related advice or guidance” from the ATO but has invited feedback on any consequences from the decision not identified by the ATO.
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