Bluebottle UK Ltd v Deputy Commissioner of Taxation

The High Court of Australia considered an appeal by Bluebottle UK Ltd concerning notices issued by the Deputy Commissioner of Taxation under section 255 of the *Income Tax Assessment Act 1936* (Cth). The dispute arose when the Commissioner sought to recover alleged tax liabilities of two non-resident shareholders in Virgin Blue Holdings Limited by requiring Virgin Blue to retain dividend payments due to those shareholders. The Commissioner issued initial notices before assessing the shareholders' tax liabilities, and subsequently issued further notices after assessments were made, but after the shareholders had assigned their rights to the dividends to Bluebottle UK Ltd.

The central legal issues before the Court were whether section 255 of the Act required the Commissioner to have assessed a non-resident's tax liability before issuing a notice to a third party to pay that tax, and whether Virgin Blue was obliged to retain the dividend payments to satisfy the shareholders' tax liabilities, notwithstanding the assignment of those dividend rights. The Court also considered the nature of a dividend declaration, the time at which a debt is incurred by a company in respect of a dividend, and the effect of an assignment of dividend rights on a company's obligation to pay.

The Court reasoned that section 255(1)(b) of the Act, which allows the Commissioner to require a third party to pay tax due by a non-resident, can only operate if a tax assessment has been issued. Therefore, the Commissioner's initial notices were invalid as no assessment had been made at that time. However, the Court found that the Commissioner's subsequent notices, issued after the assessments were made, were valid. The Court held that Virgin Blue remained liable to pay the declared dividend to its shareholders on the record date, irrespective of the assignments, and was therefore obliged by the valid notices to retain sufficient funds from those dividends to meet the shareholders' tax liabilities. The Court also clarified that for the purposes of section 588G of the *Corporations Act 2001* (Cth), a debt in respect of a dividend is incurred when the dividend is paid, or when it is declared if the company's constitution permits.

The appeal was dismissed with costs.