Merchant v Commissioner of Taxation [2024] FCA 498

FEDERAL COURT OF AUSTRALIA

Merchant v Commissioner of Taxation [2024] FCA 498 File number(s): NSD 907 of 2021 NSD 908 of 2021 NSD 1161 of 2021

Judgment of: THAWLEY J

Date of judgment: 14 May 2024

Catchwords: TAXATION – s 177D in Part IVA of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) – where tax benefit admitted – where only issue was dominant purpose under s 177D(1) to obtain admitted tax benefit – where vendor sells shares in listed company at market value to related entity such that there was no change in economic ownership – where sale of shares triggered capital loss – where sale occurred in context of predicted capital gains being made by vendor from sale of a company to a third party – held: dominant purpose was one of obtaining the admitted tax benefit TAXATION – dispute as to market value of future earn-out amounts – market value determined in favour of applicant TAXATION – s 177E in Part IVA of the ITAA 1936 – dividend stripping – where loans made by related entities to a company the shares in which were going to be sold – whether the loan forgiveness had substantially the effect of a scheme by way of or in the nature of dividend stripping – proper identification of the scheme for the purposes of s 177E – whether consequences of the application of the general anti-avoidance provision taken into account in determining application of s 177E to a related assessment – held: scheme had the effect of a scheme by way of or in the nature of dividend stripping within s 177E(1)(a)(ii) TAXATION – taxation of financial arrangements (TOFA) – whether certain future payment amounts were financial arrangements under subsection 230-45(1) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) – if they were, whether future payment rights were excluded by former section 230-460(13) ITAA 1997 – held future earn-out rights were separate financial arrangements, but exception applies