In order to satisfy these two thresholds and access the SBCGTC, some taxpayers consider restructuring, which may involve disconnecting entities or reducing assets or increasing liabilities. But, as the following case demonstrates, care must be exercised.
In Track & Ors v Commissioner of Taxation [2015] AATA 45, the Administrative Appeals Tribunal found that the anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 applied to deny a number of taxpayers access to the SBCGTC. The case dealt with a number of other matters – such as which taxpayers should be assessed as a result of denying the group access to the SBCGTC – highlighting the complexity of issues arising when the SBCGTC are in play.
The taxpayers comprised a group of trusts, companies and individuals who were involved in the sale of a business in July 2005 for $8,159,808. In June of 2005, on the advice of solicitors, a number of protection trusts were established and distributions were made to the protection trusts, with loan backs to entities in the group. The effect of the scheme was to reduce the net assets of the group to $3,812,063. The scheme and the facts of the case are very complex. Suffi ce to say, the intention was to reduce the net assets of the group in order to satisfy the maximum net value asset test and access the SBCGTC.
The commissioner of taxation determined that Part IVA of the ITAA 1936 applied to include the capital gain made on the sale of the business as assessable income without the benefi t of the SBCGTC. In the tribunal hearing, the commissioner contended that the scheme had the object of enabling Track Co to obtain access to the SBCGTC, and the arrangements entered into reduced the trust assets and increased its liabilities to ensure that the trust net assets at the time of sale were less than the relevant threshold.
In fi nding against the taxpayers, the tribunal noted that there was no explanation about how the steps taken in the scheme and the establishment of the protection trusts contributed to the asset protection motive for the scheme, as asserted by the taxpayers. Further, the evidence given for the need for asset protection was also unconvincing.
It is not enough to assert that asset protection is the dominant motive for undertaking a restructure; the need must be real and supported by evidence. In the case before the tribunal, the complexity of the scheme and the timing of distributions pointed to the restructure having the purpose of obtaining a tax benefi t by accessing the SBCGTC.
This case highlights that where arrangements are driven by a desire to access the SBCGTC and obtain tax benefi ts, and the arrangements are entered into prior to the triggering of a CGT event, the anti-avoidance rules may apply.
This is particularly the case where the arrangements are complex and artifi cial in nature and cannot be explained commercially.
