PERRAS & PERRAS

The parties to this proceeding were the applicants, Mr. and Mrs. Perras, and the respondent, the Commissioner of Taxation. The dispute concerned the Commissioner's assessment of additional income tax against the applicants for the 2013 and 2014 income years, arising from the Commissioner's view that certain payments received by the applicants from a company, P.E.R.R.A.S. Pty Ltd, constituted assessable income rather than loans. The matter came before Hughes J of the Federal Court of Australia.

The primary legal issue before the court was whether the payments made by P.E.R.R.A.S. Pty Ltd to the applicants were loans, as contended by the applicants, or dividends, and therefore assessable income, as determined by the Commissioner. This required the court to consider the nature of the transactions and the intention of the parties at the time the payments were made, in accordance with established principles for distinguishing between loans and dividends.

Hughes J found that the evidence did not support the applicants' assertion that the payments were intended to be loans. Crucially, there was no evidence of any intention to repay the funds, no fixed or determinable date for repayment, and no interest was charged on the amounts advanced. The court applied the principle that where advances are made by a company to a shareholder without any expectation of repayment, they are to be treated as dividends. Consequently, the court held that the payments were dividends and therefore assessable income.

The court ordered that the applicants' application be dismissed and that the Commissioner's amended assessment for the 2013 and 2014 income years be affirmed.