Commissioner of Taxation v Rozman (No 2)

In the case of Commissioner of Taxation v Rozman (No 2), the Federal Court of Australia was called upon to decide the proper interpretation of sections 109C and 109T of the Income Tax Assessment Act 1936 (Cth) in the context of a deemed dividend scenario. The primary legal issue before the court was whether section 109T of the Act, which deals with payments made by a private company to an entity through one or more interposed entities, affects the scope of section 109C, which pertains to payments made by direction. The court was also required to consider whether the interpretation of section 109C should be influenced by the statutory requirement that deemed dividends must not exceed the company's distributable surplus, as outlined in section 109Y.

Perram J addressed the arguments presented by both parties and concluded that section 109T does not render section 109C inoperative in cases where a private company directs an interposed entity to make a payment. The judge found that section 109T is concerned with situations where the interposed entity makes a payment independently of any direction from the private company, and therefore, it does not render section 109C redundant. Moreover, the court held that section 109Y, which limits the amount of deemed dividends to a company's distributable surplus, does not impact the general operation of section 109C. The court found that even if section 109C were to encompass payments by direction, it would not conflict with the limitations imposed by section 109Y.

The court allowed the Commissioner's appeal and partially allowed Josephine Rozman's cross-appeal. The decision of the Administrative Appeals Tribunal was set aside, and the matter was remitted to the Tribunal to be dealt with in accordance with the court's reasons. The court also ordered that the Commissioner pay Rozman's costs for both the appeal and cross-appeal.