Businesses disposing of capital gains tax (CGT) assets using CGT reduction arrangements may soon find themselves subject to close scrutiny from the Australian Taxation Office (ATO).
A draft
taxation determination released this week questions whether Part IVA of the
Income Tax Assessment Act 1936 can apply to such arrangements.
In its draft finding, the answer is yes.
This view is not a final determination, and the ATO is calling for comments by February 14.
"While CGT reduction arrangements may vary widely in the precise steps used, and the provisions of the income tax law relied upon, they all have similar economic and tax effects, and make use of very similar techniques," the draft determination on the website states.
"The commercial substance of these arrangements is that a corporate group disposes of a CGT asset to an unrelated third party. However, this disposal does not give rise to tax consequences of the same type, or extent, that would normally be expected upon such a disposal."
It goes on to list 13 features such an arrangement may exhibit.
"The application of Part IVA depends on a careful weighing of all the relevant facts and surrounding circumstances of each case. Therefore, in the absence of all relevant information it is not possible to state definitively whether a particular arrangement or transaction will attract Part IVA.
"However, arrangements of the type described in (the list of features), and arrangements having similar economic and tax effects, are considered likely to attract the operation of Part IVA.
"In this type of scheme it is likely that, but for the scheme, a CGT asset would have been sold to the third party for its market value. This disposal would have resulted in a capital gain for tax purposes, and indirectly in an amount being potentially included in the assessable income of the taxpayer."
Comments on the draft, due by February 14, may be sent to contact officer Gavin O'Shea (Ph. 02 6216 2159:
- Email: Gavin.O'Shea@ato.gov.au
- Fax: 02 6216 1088
- Post: Australian Taxation Office
2 Constitution Avenue
CIVIC ACT 2601.