Douglas and Commissioner of Taxation (Taxation)

This matter concerned an application by Mr Douglas for review of a decision by the Commissioner of Taxation to issue an amended income tax assessment for the 2019 financial year. The dispute centred on whether a "Special Dividend" paid by BHP Group Limited to Mr Douglas, an Australian resident shareholder, and its associated franking credit, should be treated as assessable income or a return of capital. The Administrative Appeals Tribunal was tasked with determining if the amended assessment was excessive.

The primary legal issue before the Tribunal was whether the Special Dividend paid by BHP constituted a "dividend" for the purposes of the *Income Tax Assessment Act 1936* (Cth) ("ITAA 1936"), specifically under section 44(1)(a). This required the Tribunal to consider whether the distribution was paid out of profits, and if so, whether it should be included in Mr Douglas's assessable income under section 6-5 of the *Income Tax Assessment Act 1997* (Cth). The Tribunal also had to consider the burden of proof, which rested on Mr Douglas to demonstrate that the Commissioner's assessment was excessive.

The Tribunal reasoned that the definition of "dividend" in section 6(1) of the ITAA 1936 includes any distribution made by a company to its shareholders. The Special Dividend, being a payment of money from BHP to its shareholders, satisfied this definition. Furthermore, the Tribunal noted that the dividend was sourced entirely from the company's current year profits and retained earnings, and therefore did not fall within any exclusions to the dividend definition. This aligned with ATO ID 2003/824, which confirmed that such a distribution constitutes a dividend for income tax purposes. Mr Douglas's alternative contention regarding pre-1985 shareholdings and Capital Gains Tax exemption was not relevant to the determination of whether the distribution was a dividend under section 44.

The Tribunal affirmed the Commissioner's amended assessment, finding that the Special Dividend and franking credit were correctly included as assessable income. Mr Douglas failed to discharge the onus of proving that the assessment was excessive.