We have finished our analysis of what is money and now turn to consider what is a payment. In particular, we want to examine if and when a journal entry can constitute a payment. The first case we will look at is Deputy Federal Commissioner of Taxation v Black.
This session examines the Federal Court’s interpretation of deemed dividend provisions in DFC of T v Black (1990), focusing on the tax consequences of shareholder loan forgiveness. The case turned on whether the forgiveness of a loan by a private company (Lens-co) to its shareholder (Mr Black) constituted a deemed dividend.
The Tribunal found, and the Court affirmed, that although Lens-co resolved to write off the debt, this unilateral act did not release the shareholder from liability and thus did not amount to a distribution or benefit for tax purposes. The Commissioner’s argument that economic equivalence should override legal form was firmly rejected.
Discussion Focus
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Why unilateral loan forgiveness is not a “distribution” or “payment” under s 108(1).
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The distinction between crediting as shareholder versus debtor.
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The relevance of enforceability and legal form over perceived economic benefit.
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Limits of the Commissioner’s discretion in applying deeming provisions.
This case is a cautionary lesson in corporate tax integrity: accounting entries and director resolutions must reflect enforceable legal actions, or they risk mischaracterisation. It reinforces a principle central to tax law: that legal substance, not economic effect alone, determines liability.
Please see below link to case materials which is assumed reading in order to participate in the discussion:
Discussion led by Adrian Cartland.