02 August 2016
by Joanna Mather

Tax battle over $200m bonus headed for High Court

Vaughan Blank

A long-running battle between former Glencore trader Vaughan Blank and the Australian Tax Office over $200 million in bonuses will reach its climax when the matter is heard by the High Court this month.

The dispute is over whether money Mr Blank received when he cashed out of Glencore's employee profit plans should be assessed as ordinary income, as the ATO claims, or as a capital gain, which entitles Mr Blank to a tax discount.

Mr Blank, who is now involved in property development and reportedly purchased the Golden Sheaf in Double Bay in 2014, was granted special leave to appeal to the High Court in May and the matter will be heard in Canberra on August 23.

Mr Blank worked for Glencore in Switzerland and Hong Kong before he moved to Australia in 2002.

By the time he resigned in 2006 he had acquired, over a 15-year period with the company, a series of rights to share in the future profits of Glencore companies.

In 2007 he gave up the rights in exchange for $US160 million, or $201 million Australian, which was payable in 20 instalments over five years.

Tax discount
Mr Blank lodged a tax return for the 2007 tax year in which he returned a capital gain of $100.8 million.

This was the result of the disposal of his Glencore rights, at $201 million, minus the 50 per cent capital gains tax discount.

While the ATO initially accepted this position, it later issued amended assessments for 2008, 2009 and 2010, telling Mr Blank the $201 million would be treated as ordinary income and therefore taxed at his full marginal rate.

The case comes to the High Court after the Federal Court and a majority of the Full Federal Court took the view that the entire amount was assessable as ordinary income.

"It is submitted that an amount received by an employee in a capacity other than as an employee ... cannot be income from personal exertion," says a submission by Mr Blank's legal team.

As disputed tax returns go, they do not get much bigger than this. It is difficult to be sure, but at stake is somewhere between $20 million and $45 million.

Fundamental questions
The fact the High Court granted Mr Blank's legal team special leave to appeal suggests the judiciary believes the case could shed light on fundamental questions of law, according to Stewart Grieve, a partner with Johnson Winter & Slattery.

Having examined High Court submissions by both parties, he calculated a win for Mr Blank might entitle him to a refund of up about $17 million, while a loss could see him forced to pay the ATO an extra $45 million.

"It appears that if the taxpayer wins ... he may be entitled to a substantial refund of tax," Mr Grieve said, while stressing he did not have access to the full details of Mr Blank's tax affairs and the numbers should only be viewed as a rough guess.

Mr Blank featured in newspaper reports in 2011, when he reportedly irked neighbours including film producer George Miller with plans to demolish his Watsons Bay mansion, Villa Porto Rosa.

Corelogic quotes a sale price of $28 million for the Spanish villa, built 1928 by Sydney retailer Hugh Victor Foy and purchased by Mr Blank in 2008.