The taxpayer’s appeal to the Full Federal Court
The taxpayer appealed to the Full Federal Court, broadly on the same grounds as before. He also argued that the primary judge of the Federal Court had erred by not finding that:
- the capital gains in issue, before application of capital losses and the CGT general discount, were “included in” the taxpayer’s assessable income for the purposes of S.770-10(1); or
- as an alternative to the above, the full US tax on each gain was paid “in respect of” the corresponding net capital gain for the purposes of S.770-10(1); or
- as an alternative to both the above, that Article 22(2) of the DTA requires Australia to allow as a credit against the relevant Australian tax, the full US tax paid in respect of the capital gains.
Ultimately, the Full Federal Court upheld the Federal Court’s decision that the taxpayer was not entitled to a full FITO under S.770-10(1) for the US tax paid in respect of the discounted capital gains that had been included in his assessable income. Furthermore, with regards to the effect of Article 22(2) of the DTA, in a 2:1 majority (Logan J dissented), the Full Federal Court dismissed the taxpayer’s appeal, essentially because it found there was no inconsistency with S.770-10(1).
STOP PRESS – High Court refuses taxpayer’s application to appeal
On 14 February 2020, the High Court refused an application by the taxpayer for special leave to appeal against the decision of the Full Federal Court in Burton’s case. Consequently, the Full Federal Court decision confirming the ATO’s position that foreign income tax paid on a foreign capital gain only counts towards the calculation of a FITO under S.770-10, to the extent that the capital gain is assessable in Australia.