Raftland Pty Ltd v Commissioner of Taxation

Raftland Pty Ltd, as trustee of the Raftland Trust, challenged the Commissioner of Taxation's decision regarding the distribution of trust income to the E&M Unit Trust in the tax years 1995, 1996, and 1997. The core issue was whether these distributions were genuine arm's length transactions or part of a scheme to avoid tax, specifically through the application of accumulated tax losses. The case involved complex transactions among various entities controlled by the Heran brothers, including Heran Projects Pty Ltd, Northbank Homes Pty Ltd, and Southbank Homes Pty Ltd. The transactions were structured to utilise the E&M Unit Trust's substantial tax losses to offset the forecast profits of these companies.

The legal issues before the court included the characterisation of the transactions as genuine business arrangements or as a tax avoidance scheme under the general anti-avoidance rule (GAAR) in Part IVA of the Income Tax Assessment Act 1936. The court had to determine whether the distributions were made for the primary purpose of obtaining a tax benefit and whether the E&M Unit Trust effectively ceased to exist as a result of these transactions. The court also needed to assess the costs associated with the discontinued proceedings, determining whether the Commissioner was entitled to all the costs incurred.

In delivering the decision, the court found that while the Commissioner was entitled to the costs of the proceeding, he was not entitled to all of these costs. The court considered the significant effort put into the trust issues, which occupied a considerable part of the hearing, and the Commissioner's partial success in the case. The Commissioner had not pursued a case based on Part IVA, despite extensive preparation, and was unsuccessful on the trust issues. The court concluded that it was appropriate to deny the Commissioner a portion of his costs, assessing them at seventy percent. The appeal was dismissed, and the applicant was ordered to pay seventy percent of the respondent's costs of the proceedings.