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The majority underlying interests provision -- s160ZZS of the Income Tax Assessment Act 1936 -- is proving to be of great practical and commercial significance in 1995. Australian CGT is now in its tenth year, and so this is perhaps not surprising.
What is surprising, however, is the continuing scarcity of case law on this most important CGT provision. I am sure this is no accident.
The Commissioner continues to control skillfully the tax cases which come to the tribunal and the courts. He also controls skillfully the cases which proceed to hearing and final determination. It is often claimed that the Commissioner handles tax cases in a disinterested manner, that he is prepared to take his medicine when the tribunal or a court wishes to (or, more relevantly, appears likely to) administer it -- all in the interests of everyone better knowing what the words in the Act really mean.
This is simply not true. The Commissioner, in the instance at hand, clearly benefits from the status quo in regard to s160ZZS: a series of highly questionable Taxation Rulings on the subject (starting with IT 2340) which purport to relieve the serious practical problems to which the provision patently gives rise, a few minor Taxation Determinations and (remarkably) only one case of any real relevance.
AAT CASE 7529
I will consider s160ZZS at some length in the future. For the moment, I would like to take readers through the decision of Deputy President B.J. McMahon in AAT Case 7529 (1991) 22 ATR 3532. This is a useful exercise in its own right, and will provide a foundation for future columns on the subject.
The Facts
The taxpayer company (incorporated in 1920) held valuable pre-CGT real estate (the property) as its principal asset. On 18 October, 1985 there was a change in the majority share-holding in the taxpayer and, by the end of November 1985, all the issued shares had been sold at a total price of $1,626,576.
On 2 December, 1985 the property was sold -- by contract made that...