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Maxim Group |
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April 2007 |
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Volume 2 Issue 3 |
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Maxim Insight |
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CGT and Forward Purchase Agreements |
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Overturning an earlier decision of the Administrative Appeals Tribunal (AAT), the Federal Court has found that an arrangement involving a forward purchase agreement (FPA) for the sale of shares did not give rise to a capital gain in the hands of the taxpayer. The taxpayer purchased shares in 1993 and sought to sell a large portion of those shares in 1996 by way of an FPA. The taxpayer was to receive $3.53 per share in 1996 and fully franked dividends for the next four years. The taxpayer granted a warrant over the shares, obliging the holder to buy or sell shares at the contract date, but retained beneficial ownership over the shares. By entering into the FPA, the taxpayer potentially limited the consideration for CGT and derived dividends over the next four years that would be sheltered from tax by franking credits. The Commissioner contended that this right to retain ownership for four years had the characteristics of ‘property’ and hence the capital gain should be included in the taxpayer’s assessable income representing the value of the rights to retain ownership and benefit from the dividend flows until completion. The Commissioner did not accept that consideration for the shares could simply be an amount set by the FPA and sought to assess the taxpayer on what he deemed to be additional ‘non-cash consideration’. The Commissioner viewed the arrangement as conferring on the taxpayer a contractual right, as a result of retaining beneficial ownership of the shares over the period of the agreement. The Court disagreed with the Commissioner’s position, and found that the taxpayer’s right to retain beneficial ownership of the shares did not |
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Remission of Penalties |
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The Tax Office has recently released Practice Statement Law Administration PS LA 2007/3, which relates to the remission of penalties. The practice statement specifically covers: · the failure to issue a tax invoice or adjustment note as required by the GST legislation; and · an entity and its agent both issuing separate tax invoices or separate adjustment notes contrary to the requirements of the GST legislation. |
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In this issue |