Burton v Commissioner of Taxation

• Jurisdiction: Australia Federal only
• Court: Federal Court
• Judgment Date: 22 August 2019
• Neutral Citation: [2019] FCAFC 141
• Date: 22 August 2019

FEDERAL COURT OF AUSTRALIA

Burton v Commissioner of Taxation [2019] FCAFC 141

Appeal from:	Burton v Commissioner of Taxation [2018] FCA 1857
File number:	WAD 600 of 2018
Judges:	LOGAN, STEWARD AND JACKSON JJ
Date of judgment:	22 August 2019
Catchwords:	TAXATION – foreign income tax offset – s 770-10 of the Income Tax Assessment Act 1997 (Cth) – where taxpayer paid tax in the United States on gains made from the sale of certain assets in that country – where gains were also taxable in Australia – where gains were derived on capital account for Australian tax purposes – where 50% capital gains tax discount applied – where Commissioner denied the taxpayer a foreign income tax offset against his tax liability in Australia on the gains to the extent of half of the tax paid in the United States – whether the capital gains before the application of capital losses and the capital gains tax discount were “included in” the taxpayer’s assessable income for the purposes of s 770-10 – whether the full tax paid in the United States on the gains was paid “in respect of” the Australian net capital gain for the purposes of s 770‑10 ; TAXATION – treaty interpretation – Art 22(2) of the double tax convention between Australia and the United States – where Art 22(2) of the double tax convention between Australia and the United States requires Australia to allow as a credit against Australian tax the US tax paid “in respect of income derived from sources in the United States” – whether the gain constitutes “income derived from sources in the United States” – whether the gain “in respect of” which tax is paid refers to the whole of the gain taxed in the United States or the discounted gain taxed in Australia – where the double tax convention was incorporated into Australian law pursuant to s 5 of the International Tax Agreements Act 1953 (Cth) – whether there is an inconsistency between Art 22(2) and s 770-10 of the Income Tax Assessment Act 1997 (Cth)
Legislation:	Income Tax Assessment Act 1936 (Cth) ss 95, 97, 121EG, 160AF (repealed) Income Tax Assessment Act 1997 (Cth) Divs 6, 770, ss 2‑35, 2‑45, 4-10, 4-15, 6-5, 6-10, 6-15, 13-1, 102-5, 104‑10, 110-25, 115-10, 115-25, 115-100, 115-215, 116‑20, 770-1, 770-5, 770-10, 770-65, 770-70, 950-100, 950-150, 995-1 Income Tax (International Agreements) Act 1968 (Cth) International Tax Agreements Act 1953 (Cth) ss 3, 4, 5, 14 (repealed), 15 (repealed), 16 Taxation Laws Amendment (Foreign Tax Credits) Act 1986 (Cth) Explanatory Memorandum, Income Tax (International Agreements) Bill 1968 (Cth) Explanatory Memorandum, Tax Laws Amendment (2007 Measures No. 4) Bill 2007 (Cth) ; Agreement between Australia and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, and Protocol, signed on 17 March 1976, [1976] ATS 24 (entered into force on 27 September 1976) Agreement between the Government of Australia and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, signed on 25 July 1991, [1991] ATS 49 (entered into force on 30 December 1991) Agreement between the Government of the Commonwealth of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains, signed on 7 December 1967, [1968] ATS 9 (terminated on 17 December 2003) Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, signed on 6 August 1982, [1983] ATS 16 (entered into force on 31 October 1983) as amended, Arts 2, 3, 6, 7, 8, 10, 11, 12, 13, 14, 15, 17, 18, 19, 20, 21, 22 Vienna Convention on the Law of Treaties, opened for signature on 23 May 1969, [1974] ATS 2 (entered into force on 27 January 1980), Art 31
Cases cited:	Anson v Commissioners for Her Majesty’s Revenue and Customs [2015] UKSC 44; 4 All ER 288 Carr v Western Australia (2007) 232 CLR 138 Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross (2012) 248 CLR 378 Chevron Australia Holdings Pty Ltd v Federal Commissioner of Taxation (No 4) [2015] FCA 1092; (2015) 102 ATR 13 Commissioner of Inland Revenue v Lin [2018] NZCA 38 Commissioner of Taxation v Lamesa Holdings BV (1997) 77 FCR 597 ConnectEast Management Ltd v Federal Commissioner of Taxation (2009) 175 FCR 110 Duckering (Inspector of Taxes) v Gollan [1965] 2 All ER 115 Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 83 FCR 511 Federal Commissioner of Taxation v Greenhatch (2012) 203 FCR 134 Jeffrey James Prebble Pty Ltd v Commissioner of Taxation (2003) 131 FCR 130 McDermott Industries (Aust) Pty Ltd v Commissioner of Taxation (2005) 142 FCR 134 Mutual Life and Citizens’ Assurance Co Ltd v Commissioner of Taxation (1959) 100 CLR 537 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Satyam Computer Services Limited v Commissioner of Taxation [2018] FCAFC 172; (2018) 362 ALR 589 Stevens v Kabushiki Kaisha Sony Computer Entertainment (2005) 224 CLR 193 Thiel v Commissioner of Taxation (1990) 171 CLR 338 Woodside Energy Ltd v Commissioner of Taxation (No 2) [2007] FCA 1961; (2007) 69 ATR 465
Date of hearing:	21 May 2019
Date of last submissions on behalf of the Appellant:	5 June 2019
Date of last submissions on behalf of the Respondent:	19 June 2019
Registry:
Division:
National Practice Area:
Category:	Catchwords
Number of paragraphs:	174
Counsel for the Appellant:	Mr JO Hmelnitsky SC with Ms CA Burnett
Solicitor for the Appellant:	Herbert Smith Freehills
Counsel for the Respondent:	Mr AJ Musikanth SC with Mr PA Walker
Solicitor for the Respondent:	Minter Ellison

ORDERS

		WAD 600 of 2018
BETWEEN:	CRAIG IAN BURTON Appellant
AND:	COMMISSIONER OF TAXATION Respondent

JUDGES:	LOGAN, STEWARD AND JACKSON JJ
DATE OF ORDER:	22 AUGUST 2019

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant pay the respondent’s costs of and incidental to the appeal, to be taxed if not agreed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

LOGAN J:

1. Mr Craig Burton is an Australian tax resident. In the 2011 and 2012 income years, he derived capital gains from investments which he had made in the United States of America (US). Those gains were taxed at source under US revenue law. Mr Burton paid the applicable US tax.

2. By virtue of Mr Burton’s residence, the gains were also taxable in Australia, albeit in a different way. In his Australian tax returns for the income years in question, Mr Burton claimed the benefit of the US tax which he had paid, either as a foreign tax credit pursuant to Article 22(2) of the Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income ([1983] ATS 16),...