Kellas v Commissioner of Taxation [1999] FCA 109 (22 March 1999)

Last Updated: 24 March 1999

FEDERAL COURT OF AUSTRALIA

Kellas v Commissioner of Taxation [1999] FCA 109

INCOME TAX - rebate for imputation credit on franked dividends - whether taxpayer should have been paid or credited with the full amount of imputation credits - rebate for imputation credits not to exceed tax otherwise payable - no "double taxation"

HEARING AND REASONS - full and proper hearing - no requirement to repeat reasons given by the Administrative Appeals Tribunal which were accepted by the primary judge.

WORDS AND PHRASES - "rebate", "imputation credit", "double taxation"

Administrative Appeals Tribunal Act 1975 (Cth) s 44

Income Tax Assessment Act 1936 (Cth) Pt IIIAA, ss 160AD, 160AQT and 160AQU

JOHN GORDON KELLAS v

COMMISSIONER OF TAXATION

QG 77 OF 1998

COOPER, TAMBERLIN & DOWSETT JJ

22 MARCH 1999

BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 77 OF 1998

ON APPEAL FROM A SINGLE JUDGE

OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	JOHN GORDON KELLAS Appellant
AND:	COMMISSIONER OF TAXATION Respondent
JUDGES:	COOPER, TAMBERLIN & DOWSETT JJ
DATE OF ORDER:	22 MARCH 1999
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

The appeal will be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 77 OF 1998

ON APPEAL FROM A SINGLE JUDGE

OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	JOHN GORDON KELLAS Appellant
AND:	COMMISSIONER OF TAXATION Respondent

JUDGES:	COOPER, TAMBERLIN & DOWSETT JJ
DATE:	22 MARCH 1999
PLACE:	BRISBANE

REASONS FOR JUDGMENT

THE COURT:

1 This is an appeal from a decision of Drummond J dismissing an appeal from the Administrative Appeals Tribunal ("the AAT") brought under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth).

2 The appeal concerns the provisions of Part IIIAA of the Income Tax Assessment Act 1936 (Cth) ("the Act") which provides for the taxation of shareholders and the allowance of rebates on franked dividends. There are a number of grounds of appeal, but the principal one is that the taxpayer was not paid or credited with the full amount of imputation credits available on franked dividends received by him, which in his case total $19,057, in the income tax year ended 30 June 1994. The Commissioner allowed, as a credit against tax payable, a rebate of $3,843 being the tax payable on his taxable income for that year of $21,561. The taxpayer says that he was entitled to be paid, or credited with the balance of the $19,057.

3 The provisions of the Act relating to the treatment of franked dividends are found in Part IIIAA. The purpose of those provisions is to alleviate the "double" taxation of company profits that existed under the previous company tax regime concerning dividends. "Double" taxation in this context refers to the fact that the profits derived by a company were taxed in its hands, and subsequently when dividends were paid to shareholders out of those profits, these moneys were taxed in the hands of the shareholders without any adjustment for company tax which had been paid. The provisions operate to impute company tax, levied on resident companies, to resident shareholders who are paid a dividend on or after 1 July 1987. The franked dividends paid to shareholders are included in assessable income as is the amount of the imputed company tax, but in return where the shareholder is a natural person he or she is given an entitlement to a rebate of tax of an equivalent amount to the imputed company tax. The rebate may be offset against tax on other income but cannot be carried to any other year of income.

4 The questions in the present case arise in this way. Section 160AQT of the Act provides that where franked dividends are paid to a shareholder the assessable income of the shareholder must include an amount calculated in accordance with a prescribed formula. In the present case that formula produced a total figure, in respect of franked dividend income, of $19,057. The section requires inclusion of this amount in assessable income. It cannot therefore be said that there is no statutory basis for including this amount in assessable income as the taxpayer contends.

5 There is next a provision made in s 160AQU for the franking rebate. This entitles the shareholder to a rebate of tax in the shareholder's assessment in respect of income equal to the amount included in the shareholder's assessable income by reason of s 160AQT, which in this case is $19,057. However, there is an upper ceiling on this rebate, imposed by s 160AD, which is that notwithstanding anything in any Act, the sum of all rebates allowable under the Income Tax Assessment Act shall not exceed the amount of tax which would otherwise be payable by the taxpayer, which in this case is $3,843. Accordingly, there is a "cap" on the amount of total rebates which can be provided under the Act.

6 Central to the taxpayer's argument is the submission that s 160AD on its proper interpretation does not limit imputation credits but only concerns rebates, and that these two expressions are distinct, and therefore the AAT and the Court were in error in interpreting s 160AD to apply in the present case to reduce the rebate entitlement of the taxpayer from $19,057 to $3,843. In our view there has been no error. The only entitlement to tax relief given by the above provisions is for a rebate which is equal in amount to the imputation credit. That rebate entitlement is limited by s 160AD. There is no room for an argument that notwithstanding s 160AD, which is an overriding provision, the taxpayer is entitled to payment or a credit for the full amount of the rebate arising as a consequence of the imputation credit.

7 There is no provision in the Act which gives taxpayers an entitlement to payment of an imputation credit. They are entitled to rebates of tax equal to the total amount included by way of s 160AQT in the shareholder's assessable amount, but the amount of the rebate arising from imputation credits must not exceed the amount of tax which would otherwise be payable by the taxpayer. This is the clear meaning of s 160AD. The Court must apply this specific statutory limitation. It is not for this Court to alter the legislative policy or mechanism prescribed by the Act. The role of the Court is to interpret and apply the law. In this case the purpose and meaning of the Act are specific as to the extent of the limited tax relief which the taxpayer is entitled to obtain under the provisions relating to franked dividends.

8 No question of "double taxation" arises in the present case on the accepted understanding of that expression because the liability to tax is imposed on two different taxpayers, namely the corporation and the individual and they are distinct liabilities.

9 The grounds of appeal also raise the question as to whether the appellant was given a full and proper hearing. This argument was not developed in any detail orally before this Court. However, on examining the material provided to the Court in the four appeal books, and the transcript of the hearing before the primary judge, there does not appear to have been any limitation on written submissions and the appellant was given an adequate and sufficient opportunity to present his case to the primary judge. In these circumstances we are not satisfied there is any substance in this ground of appeal.

10 There is a further ground of appeal to the effect that no written judgment or reasons were provided. However, the materials before this Court on appeal indicate that a short judgment was delivered. This judgment adopted, and found no errors in, the reasons for the decision of the AAT. There is no requirement, where the Court considers the reasons given below adequately cover the situation, to repeat those reasons in an appellate judgment.

11 The taxpayer says that an excess imputation credits refund was not allowed and therefore there was an error of law. The Act gives no right to a refund or repayment of any excess imputation credits and this cannot therefore be an error in law.

12 It is quite apparent from the history, hearings and written submissions in this matter, that the appellant is really aggrieved by the present provisions of the Act and says they should be changed. It is not a matter for this Court to amend legislation but rather to interpret and apply the law to the facts of the particular case.

13 In our view, the statutory provisions are quite clear and having considered the reasons for decision of the AAT, which were adopted by Drummond J, we are not satisfied any appealable error has been made.

14 Accordingly, this appeal must be dismissed with costs.

I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Dated: 22 March 1999

Appellant:	Appellant appeared in person
Counsel for the Respondent:	Mark Robertson
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	16 February 1999
Date of Judgment:	22 March 1999