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Tax Telegraph, October 2013

CasesCommissioner of Taxation v Fabig [2013] FCAFC 99 – CGT rollover relief

The Federal Court has unanimously set aside the decision of the Administrative Appeals Tribunal (AAT) and held that capital gains tax (CGT) scrip-for-scrip roll-over relief was not available to two taxpayers who received a percentage of the consideration for the sale of shares that differed from the percentage of shares they held in the company.

In reaching its decision, the Federal Court held that the AAT had erred in determining that the conditions in section 124-780(2)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) were satisfied as the purchaser was willing to buy the shares on the same terms for all shareholders and was indifferent to the break-up of consideration amongst the shareholders. The Court concluded that the decision reached by the AAT was made without regard to the legal obligations on the shareholders under the Shareholders’ Agreement. The purchaser may have been indifferent about the allocation of consideration when it made the offers, but the Shareholders’ Agreement meant that it was not open to the shareholders to accept the purchaser’s offers on the same terms and they were contractually obliged to sell their shares for different consideration. Consequently, the participation in the share sales was not available to them on substantially the same terms and therefore section 124-780(2)(c) of the ITAA 1997 was not satisfied.

ZKBN and Commissioner of Taxation [2013] AATA 604 - Residency

The AAT has affirmed the Commissioner’s objection decision in relation to notices of assessment issued to a taxpayer on the basis that he was an Australian resident for the income years ending 30 June 2007 and 30 June 2008.

In reaching its decision, the AAT took into account the ordinary meaning of ‘resident’ in section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) and noted that residency should be assessed over the broader period of the tax year without particular relevance being given to the circumstances on the last day of the financial year. The AAT concluded that the taxpayer had a continuity of association with Australia as well as an attitude that Australia continued to be his home in the relevant tax years. In particular, the AAT highlighted that the taxpayer owned a house in Australia until June 2007 as well as a vehicle until 2008 and stored his personal belongings in Australia until after the 2008 income tax year. The taxpayer also had a reliance on his Australian address to receive notices in relation to contracts for overseas work and relied on his Australian bank accounts for disbursements and receipt of income payments when overseas. The AAT did not consider the ‘domicile test’ (in section 6(1)(a)(i) of the ITAA 1936) as the taxpayer was clearly a resident according to ordinary concepts under section 6(1) of the ITAA 1936.


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