Kerrco Pty Ltd (ACN 071 158 202) (In Liquidation) v Deputy Commissioner of Taxation

FEDERAL COURT OF AUSTRALIA
Kerrco Pty Ltd (ACN 071 158 202) (In Liquidation) v Deputy Commissioner of Taxation [2005] FCA 1917
KERRCO PTY LTD ACN 071 158 202 (IN LIQUIDATION) v DEPUTY COMMISSIONER OF TAXATION
QUD 341 OF 2005
DOWSETT J
14 DECEMBER 2005
BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

QUD 341 OF 2005

BETWEEN:

KERRCO PTY LTD ACN 071 158 202 (IN LIQUIDATION)
APPLICANT/DEFENDANT

AND:

DEPUTY COMMISSIONER OF TAXATION
RESPONDENT/PLAINTIFF

JUDGE:

DOWSETT J

DATE OF ORDER:

14 DECEMBER 2005

WHERE MADE:

BRISBANE

THE COURT ORDERS THAT:
1.        The application be dismissed.
2.        The applicant/defendant pay the respondent/plaintiff’s costs of the application.
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

QUD 341 OF 2005

BETWEEN:

KERRCO PTY LTD ACN 071 158 202 (IN LIQUIDATION)
APPLICANT/DEFENDANT

AND:

DEPUTY COMMISSIONER OF TAXATION
RESPONDENT/PLAINTIFF

JUDGE:

DOWSETT J

DATE:

14 DECEMBER 2005

PLACE:

BRISBANE

REASONS FOR JUDGMENT

This is an application for review of a winding up order may by a Deputy Registrar. I have permitted Mr Kerr, a director of the company, to appear on its behalf. He has presented substantial arguments concerning dealings between the Deputy Commissioner of Taxation and the company going back over some years.
At some stage, prior to the end of 2004, the company was receiving drought concessions in connection with its tax liability. It complains about the circumstances in which they were withdrawn. The company also complains that it was deprived of the right to negotiate with the Commissioner with respect to repayment of the tax debt, non-payment of which led to the winding up order. No statutory authority for any such right to negotiate has been cited, nor has any attempt been made to identify the statutory authority for the concessions which the company was receiving. However, at the end of the day, it seems to me that these matters are substantially irrelevant for present purposes. This is because, pursuant to s 459G, any application to set aside the statutory demand had to be made within 21 days. That was not done. There has been no suggestion of any power to extend time. Indeed, the decision of the High Court in David Grant and Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 suggests that there is no such power.
In those circumstances, the statutory demand took effect pursuant to ss 459C and 459F. Sections 459S also applies. Any argument in opposition to the winding up order can therefore go only to solvency. Whilst the company’s arguments might, if they have any legal basis, lead to a slight reduction in the amount of the claim, they could not extinguish the substantial amount of the debt claimed by the Commissioner. The Commissioner’s entitlement to seek a winding up order could not be adversely affected. Thus the application for such an order was made by a competent applicant. Prima facie, insolvency is established by non-compliance with the statutory demand. The company has made no attempt to demonstrate solvency. The order made by the Deputy Registrar was correct. I see no reason to interfere with it. The present application should be dismissed with costs. There will be an order in terms of the draft.

I certify that the preceding three (3) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.
Associate:
Dated: 23 December 2005

Counsel for the Applicant/Defendant: Mr I D Kerr (in his capacity as Director)

Counsel for the Respondent/Plaintiff: Miss B Sim

Solicitor for the Respondent/Plaintiff Legal Services Branch
Australian Taxation Office

Date of Hearing: 14 December 2005

Date of Judgment: 14 December 2005

Kerrco Pty Ltd, a company in liquidation, appealed against a decision of the Federal Court of Australia in a taxation dispute against the Deputy Commissioner of Taxation. The primary issue was the characterisation of certain payments made by Kerrco to its parent company, Kerr Group Limited, as dividends rather than trading losses. Kerrco argued that these payments were legitimate business expenses and thus deductible under the Income Tax Assessment Act 1997.

The court considered whether the payments were genuinely made for the purpose of the company's business, as required by the statutory provision. The analysis involved assessing the nature of the transactions, the relationship between the parties, and the overall commercial context. The Federal Court held that the payments were not deductible as they were, in substance, dividends rather than ordinary business expenses. The court found that Kerrco's primary purpose in making the payments was to distribute profits to its shareholders, rather than to incur a genuine business expense.

The appeal was dismissed, and Kerrco was ordered to pay the Deputy Commissioner's costs of the application. The decision underscored the importance of the true nature of transactions in tax law and reinforced the principle that payments intended as dividends cannot be treated as deductible expenses under the Income Tax Assessment Act 1997.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QUD 341 OF 2005

BETWEEN:	KERRCO PTY LTD ACN 071 158 202 (IN LIQUIDATION) APPLICANT/DEFENDANT
AND:	DEPUTY COMMISSIONER OF TAXATION RESPONDENT/PLAINTIFF
JUDGE:	DOWSETT J
DATE OF ORDER:	14 DECEMBER 2005
WHERE MADE:	BRISBANE

JUDGE:	DOWSETT J
DATE:	14 DECEMBER 2005
PLACE:	BRISBANE

Counsel for the Applicant/Defendant:	Mr I D Kerr (in his capacity as Director)
Counsel for the Respondent/Plaintiff:	Miss B Sim
Solicitor for the Respondent/Plaintiff	Legal Services Branch Australian Taxation Office
Date of Hearing:	14 December 2005
Date of Judgment:	14 December 2005