The Full Federal Court’s judgment in Commissioner of Taxation v Guardian AIT Pty Ltd ATF Australian Investment Trust  FCAFC 3 is of significant precedential value. It is also the first in which section 177CB of the Income Tax Assessment Act 1936 (Cth) is relevant to the outcome and the matters that the Court could have regard to in their application of Part IVA as prior cases had made non-binding comments only.
The use of clean skin bucket companies to receive trust distributions and the interposition of holding companies to access company profits tax-free will be in the ATO’s sights – as much seems clear from the release of TA 2023/1. Anyone that has adopted such a structure should assess their risk exposure and determine a strategy going forward.
Our key takeaways from this judgment are:
Ultimately, the taxpayer succeeded in the 100A arguments and in the non-application of Part IVA to the 2012 income year. The Commissioner succeeded on the application of Part IVA to the 2013 income year.
The Full Federal Court’s decision showcases how section 177CB can nullify a taxpayer’s argument that the increased tax costs would make the scheme so unlikely that it could never be a reasonable alternative. In fact, evidence led by an accountant as to the tax advice given in that regard is now irrelevant.
This was an appeal from a first instance Federal Court decision from Logan J. You can read our thoughts on the first instance decision and the facts underlying this appeal here.
We acted for the taxpayer in this case. If you have any questions about this judgment or need assistance with any tax disputes, please get in touch with a member of our national tax team below.
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