Michael John Hayes Trading Pty Ltd as trustee of the MJH Trading Trust and Commissioner of Taxation (Taxation)

This matter concerned an appeal by Michael John Hayes Trading Pty Ltd as trustee of the MJH Trading Trust (the Applicant) against a decision of the Commissioner of Taxation. The dispute centred on whether certain dividends received by the Applicant were part of a dividend stripping operation within the meaning of s 207-155 of the *Income Tax Assessment Act 1997* (Cth) and whether these dividends were paid as part of a scheme entered into for a tax avoidance purpose. The case was heard by F D O’Loughlin KC, Deputy President.

The primary legal issue before the Tribunal was to determine the character of the dividends received by the Applicant. Specifically, the Tribunal was required to ascertain whether the scheme in which the dividends were paid had the dominant purpose of tax avoidance, as contemplated by the provisions concerning dividend stripping. This involved an examination of the purpose of the parties involved in the scheme and whether the dividends were distributed in a manner intended to enable the shareholders to receive profits in a substantially tax-free form, thereby avoiding tax that would otherwise be payable.

The Deputy President's reasoning was informed by the High Court's decision in *Consolidated Press Holdings Ltd v Commissioner of Taxation* (2001) 207 CLR 235. The Tribunal noted that the High Court endorsed the view that a tax avoidance purpose is the hallmark of a dividend stripping scheme. The Court further indicated a preference for the formulation that s 177E of the *Income Tax Assessment Act 1936* (Cth) (which deals with dividend stripping) is intended to apply only to schemes with the dominant purpose of tax avoidance, typically where profits are distributed to shareholders in a substantially tax-free form. Applying these principles to the facts before it, the Tribunal considered the evidence presented regarding the reorganisation of the Hayes Group and the various trust and corporate entities involved.

The Tribunal set aside the Commissioner's decision and substituted its own decision. The outcome indicates that the Tribunal found that the dividends in question were not part of a dividend stripping operation as defined by the relevant legislation, or that the scheme did not have the requisite dominant tax avoidance purpose.