Commissioner of Taxation v. Merchant & Anor

Merchant & Anor v. Commissioner of Taxation

Lower Court Judgment

22/04/2025 Federal Court of Australia (Logan. McElwaine and Hespe JI)

[2025] FCAFC 56

18/06/2025 Federal Court of Australia (Logan. McElwaine and Hespe JI)

[2025] FCAFC 81 (costs)

Catchwords

Commissioner of Taxation v. Merchant & Anor (S157/2025)

Taxation – schemes under Part IVA of the Income Tax Assessment Act 1936 (Cth) – dividend stripping – where company controlled by taxpayer forgave debts owed to it before its related company sold all shares in the debtor company – whether the debt forgiveness part of a scheme in the nature of dividend stripping within the meaning of s 177E(1)(a)(ii) – whether a scheme has substantially the effect of a scheme in the nature of dividend stripping only if it completely or substantially completely avoids tax on a ‘substantial portion’ of the ‘accumulated profits’ of the target company – whether the substantial effect of a scheme in the nature of dividend stripping is to be assessed having regard to the application of s 177D to another taxpayer

Merchant & Anor v. Commissioner of Taxation (S158/2025)

Taxation – schemes under Part IVA of the Income Tax Assessment Act 1936 (Cth) – where capital loss incurred by a corporate trustee’s sale of shares at market value to a related entity which was a corporate trustee subject to the Superannuation Industry (Supervision) Act 1993 (Cth) – where capital loss became a tax benefit after capital gain made on a subsequent sale of shares  – Income Tax Assessment Act 1936 (Cth) s 177D – where Full Court upheld finding by primary judge of a scheme carried out for the dominant purpose of obtaining a tax benefit – whether Full Court failed to consider the different legal, commercial and tax considerations that governed the entities involved – whether Full Court conducted the correct counterfactual inquiry