Private ruling: Deductions - black hole expenditure
Date of advice: 27 September 2023
Published: 13 November 2023
Ruling period: Income tax years ended 30 June 20XX to 30 June 20XX
Date scheme commenced: In a particular income year

Ruling: Q1: Is the payment made pursuant to an Option Cancellation Deed (the Payment) deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: If the answer to question 1 is 'No', is the Payment deductible under section 40-880 of the ITAA 1997 ? | A2: Yes

Relevant facts and circumstances: X Group 1. XHoldings is an Australian tax resident company and was formerly the head company of the X Holdings income tax consolidated group (TCG) ( X Group ). 2. The X Group carries on a business, does not have any presence outside of Australia and does not derive any non-assessable non-exempt ( NANE ) income or exempt income. InvestCo and the New Management Team 3. The X Group was acquired by InvestCo on a particular date. 4. At the time of investing in the X Group, InvestCo had a defined investment time horizon and it was intended that InvestCo would exit (either by selling or listing) its investment at the end of a particular year, once the expected EBITDA of a particular amount had been achieved. 5. After InvestCo's acquisition, a new management team was installed for the X Group. 6. An option plan ( Option Plan ) was a key part of the remuneration package offered to the new management team during the negotiation of their employment contracts. In an overview document of the Option Plan, it was specified that the Option Plan was designed to ensure that the interests of InvestCo and the new senior management team were aligned in maximising value from InvestCo's investment. 7. Upon their recruitment, the management team was tasked with turning around an underperforming business into a business with strong growth and a large pipeline of additional opportunities to create long term value. The objective purpose of the Option Plan was to incentivise management to improve the financial performance and value of the X Group. This in turn enabled InvestCo achieve its objective of exiting its investment within its investment time horizon. 8. The management team was told that the X Group would be sold upon the metrics set out at paragraph 4 above being achieved. The Option Plan was: (a) designed to act as an incentive for the new management team to grow and improve the business of the X Group in order to reach certain performance metrics; and (b) designed so that the options only vested upon the sale or listing of the X Group so that the time of payment would coincide with when the shareholders of X Holdings enjoyed the benefit of the management team's efforts in improving the financial performance and value of the X Group. The Option Plan 9. Under the Option Plan, each option in X Holdings ( Options ) conferred its holder the right to subscribe for one share in X Holdings ( Share ). Vesting Conditions 10. The Options were only to vest upon the occurrence of an "Exit Event". An "Exit Event" is defined in the Option Plan as either one or more of a sale or listing of the X Group. 11. Two methods were prescribed for calculating the number of Options which vested in each Option Holder (referred to in the Option Plan as 'Vesting Conditions'). One Vesting Condition was described as the 'Multiple of Money' method which was based on dividing net proceeds to X Holdings shareholders (pre-options) on exit (being enterprise value less transaction costs and bank debt) by total amount invested by X Holdings shareholders. The other was referred to as the exit year earnings before interest, taxes, depreciation and amortisation ( EBITDA ) method. The Vesting Condition that applied on an Exit Event was that which resulted in the highest proportion of the Options becoming vested. Cash out 12. Pursuant to the Option Plan, if an Exit Event is proposed, then the Plan Committee may, in its absolute discretion, provide for payment (a cash out) of some or all of the Options instead of providing Shares. The amount to be paid for each Option was the excess, if any, of: (a) the estimated price per Share which would have been achieved in the Exit Event if the relevant Options had vested and been exercised immediately prior to (and had then participated in) that Exit Event, multiplied by the number of Shares (which need not be a whole number) to be delivered on exercise of the relevant Option, over (b) the Exercise Price of the relevant Option. 13. Pursuant to the Option Plan, on the payment of any cash out, the relevant Option was to be automatically cancelled. 14. The ability to cash out the Options under the Option Plan was discussed as part of negotiating the employment contracts of the management team. Continued employment 15. The Option Plan provides that prior to, and conditional on, an Exit Event occurring, each senior employee who has been provided with Options must enter into a new agreement (or vary their existing agreement) with a company of the X Group or with the Third Party Purchaser. Reinvestment requirements 16. Pursuant to the Option Plan, each Option Holder was required to reinvest a percentage of the cash out amount by subscribing for securities in the Third Party Purchaser, or a holding company of the Third Party Purchaser. Options Issued to Management Team 17. Pursuant to the Option Plan, unvested Options were issued to three senior management employees ( Option Holders ) . 18. All Options provided to the Option Holders were issued with a nil issue price. 19. If an Option Holder were to leave the X Group prior to an Exit Event occurring, their Options would lapse. The Sale Transaction 20. The X Group met its financial performance target earlier than expected. 21. Thus it was determined that X Holdings would benefit from a different type of shareholder, that is a long-term partner who had the business acumen and access to capital to assist with continuing to grow the X Group's business. 22. To that end, on a particular date, InvestCo entered into a Share Sale Agreement ( SSA ) with BidCo for the sale of 100% of the shares in X Holdings ( the Transaction ). 23. BidCo is 100% owned by HoldCo. HoldCo is an Australian tax resident and head company of the HoldCo TCG. 24. The Purchase Price payable on Completion of the Transaction was adjusted by reference to the Payment, because the Payment constituted a liability of X Holdings and therefore reduced its equity value. 25. Under the SSA, InvestCo was required to procure that the Payment was paid to the Option Holders on or immediately before Completion. Payment under the Options Cancellation Deed 26. The Transaction constituted an Exit Event under the Option Plan. 27. Immediately prior to signing the SSA, the Board of X Holdings determined that all of the Options would be "cashed-out" and cancelled in accordance with the Option Plan. The Board considered that, from a practical perspective, equity settling the Options by issuing shares in X Holdings to the Option Holders could complicate the Transaction and that cash settling would allow the Option Holders to share in the success of the business alongside the exiting shareholders. 28. An Option Cancellation Deed was entered into by X Holdings and each Option Holder. 29. Pursuant to the Option Cancellation Deed, all Options held by that Option Holder were cancelled with effect from Completion in consideration for the payment by X Holdings to the Option Holder of the cash out amount as calculated under the Option Plan ( the Payment ). 30. The 'Multiple of Money' method resulted in the highest proportion of the Options becoming vested. The Payment was therefore calculated as the gross proceeds received per share in X Holdings (pre-options) at Completion less the strike price for each Option, multiplied by the number of Options held by each Option Holder. 31. Pursuant to the Option Cancellation Deed, the arrangements regarding cancellation of the Options and making of the Payment were conditional on Completion occurring. 32. If Completion of the Transaction did not occur for any reason, then the Option Holders would continue to hold the Options under the existing terms of issue. 33. The funding of the Payment was sourced from BidCo pursuant to the SSA, out of a loan advanced by BidCo to X Holdings at Completion. As X Holdings does not have a bank account, the funds were transferred from BidCo to a subsidiary member of X Holdings, who then paid the Option Holders on behalf of X Holdings. This also resulted in an intercompany payable owed by X Holdings to the subsidiary.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 subsection 40-880 | Income Tax Assessment Act 1997 subsection 40-880 (3) - (9)

Reasons for decision: Summary: The Payment is not deductible under section 8-1. | Detailed Reasoning - Consolidation: income tax consolidated groups are treated as a single entity for income tax purposes: Section 701-1 says if an entity is a subsidiary member of a consolidated group, it's taken to be part of the head company for both head company core purposes and entity core purposes. Head company core purposes are working out the head company's tax liability or loss. Entity core purposes are working out the entity's tax liability or loss. As a consequence, the actions and transactions of the subsidiary members are imputed to the head company, with the head company of the group being the only entity recognised for income tax purposes. The meaning and application of the single entity rule is explained in Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997 . X Holdings was contractually obliged to make the Payment to the Option Holders on Completion pursuant to Option Cancellation Deeds executed between those entities. On Completion, X Holdings joined the HoldCo TCG. Therefore, the Payment is to be analysed by reference to the actions and transactions of X Holdings which are then imputed to HoldCo as the head company of the HoldCo TCG, together with the tax consequences. | Detailed Reasoning - General deductions under section 8-1: The Payment qualifies for a deduction under section 8-1 if it satisfies one of the positive limbs provided by subsection 8-1(1). It must also not be excluded by any of the negative limbs provided by subsection 8-1(2). | Detailed Reasoning - Positive limbs of section 8-1: Paragraph 8-1(1)(a): The first positive limb The first positive limb of subsection 8-1(1) provides that a loss or outgoing may be deductible to the extent that "it is incurred in gaining or producing your assessable income". For an outgoing to be deductible under paragraph 8-1(1)(a), it must be incidental and relevant to the operations which produce your assessable income. [1] In addition, the essential character of the outgoing must be that of an income producing expense. [2] It is both sufficient and necessary that the 'occasion' of the loss or outgoing should be found in whatever is productive of assessable income. [3] To identify the occasion of the outgoing, it is necessary to examine all relevant circumstances giving rise to it. It is relevant to consider what the outgoing was incurred to effect from a practical or business point of view. [4] The occasion is not limited to the immediate causes for the payment, although contemporaneous events will be directly relevant and significant, and may in some circumstances, be decisive. While questions of causation (including whether a payment would have been made were it not for the existence of a particular circumstance) and purpose are relevant, ultimately characterisation of the outgoing must have regard to all relevant circumstances. [5] By this approach it is to be determined whether the outgoing is 'incidental and relevant' to an income producing activity. [6] Paragraph 8-1(1)(b) - Second positive limb The second positive limb of subsection 8-1(1) provides that a loss or outgoing may be deductible under paragraph 8-1(1)(b) to the extent that it is "necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income". To satisfy the second positive limb, a nexus must exist between the outgoing and a business carried on for the purpose of gaining or producing assessable income. Two things must be established: firstly, the expense was necessarily incurred in carrying on a business; and secondly, that the carrying on of the business was for the purposes of gaining or producing assessable income. For the expense to be incurred in the carrying on of the business, it must be part of the cost of trading operations. [7] The expense doesn't need to be unavoidable or essentially necessary. What is required is that the expenditure be appropriate or adapted for the ends of the business carried on. [8] That is, it is reasonably capable of being seen as desirable or appropriate from the point of view of the pursuit of the business ends of the business. [9] If the expense meets this definition, it will not be denied deductibility if it was not strictly necessary. [10] To understand whether the expense is appropriate and adapted involves an examination of the business operations carried on over time and the whole course of events relevant to the particular expenditure. [11] Relevantly, Taxation Ruling TR 2011/6 Income tax: business related capital expenditure - section 40-880 of the Income Tax Assessment Act 1997 core issues states at paragraph 74 that: 74. The test under the second positive limb of section 8-1 is therefore a more demanding test requiring a more immediate or direct link between the expenditure and the process of operating the business than a connection that qualifies the expenditure as being 'in relation to' a business. Application of the positive limbs to the facts At the time of investing in the X Group, InvestCo had a defined investment time horizon and it was always InvestCo's intention to exit its investment at the appropriate time, for a profit. The new management team was engaged to develop the business of the X Group into a business with strong growth and long-term value to enable InvestCo to achieve this objective. At the time of negotiating their employment contracts, the management team was fully aware that they would only be rewarded under the Option Plan upon the successful sale of the X Group. While the management team was incentivised to improve the financial performance of the business, this was simply a means to achieve the ultimate objective which was for InvestCo to profitably exit its investment within its investment time horizon. The following circumstances indicate that the occasion of the Payment is to be found in the sale of the X Group: (a) InvestCo's intentions to exit its investment in the X Group informed the terms of the Option Plan (b) the Option Plan was designed to ensure that the interests of the management team were aligned with those of InvestCo in maximising the value of InvestCo's investment (c) the Options only vested upon the occurrence of an Exit Event (being the sale or listing of the X Group (d) the Option Plan specifically allowed for the vested Options to be cashed out and this ability to cash out the Options was discussed with the management team as part of negotiating their employment contracts (e) if the Option Holder left the X Group prior to an Exit Event occurring, their Options would lapse (f) the number of Options that vested depended on the X Group EBITDA or the net proceeds to X Holdings shareholders relative to total amount invested by the shareholders (g) under the Option Plan, the Payment was calculated based on the gross proceeds received per share in X Holdings at Completion, and (h) the Option Plan was designed so that the vesting of the Options would coincide with when the shareholders of X Holdings would enjoy the benefit of the efforts of the management team. To the extent that the Payment was foreseen when the Option Plan was entered into, it was intended to incentivise the management team to work towards a sale of X Holdings on advantageous terms. The Payment was not directed at the production of assessable income or the distribution of dividends. The efforts which the Payment rewarded benefitted the shareholders upon the sale of the business. The management team's rights under the Option Plan were contingent on an Exit Event occurring and those rights lapse if they left the X Group prior to an Exit Event. This is inconsistent with the Payment being remuneration for their routine employment obligations. It was not part of the cost of the X Group's trading operations. The Payment was remuneration for performing work unrelated to the ordinary business objectives of the X Group. Having regard to the executive positions which they occupy, it is reasonable to conclude that this peripheral work would involve the senior management orchestrating strategic initiatives and methodically adjusting the company's priorities to position the X Group as an attractive acquisition target in preparation for its impending sale. This is distinct from managing the routine, income-earning operations of the business for which the senior management were otherwise remunerated with an annual salary. The new management team was hired and tasked to transform the business to achieve InvestCo's objective of exiting its investment within its investment time horizon. The incentive provided by the Option Plan during this time operated on them throughout this investment time horizon to influence behaviour consistent with InvestCo's investment objective in selling the X Group's business. Using X Group's enterprise value as the basis for calculating the number of Options vesting in the "Money on Money' method suggests that the Payment is a reward for the management team's efforts in taking the company to an Exit Event. In calculating the Payment, the number of Options which would have vested to each Option Holder was multiplied by the value of each Option. Each of those figures were ultimately determined by the sale price of the business. Calculating the Payment exclusively with reference to metrics connected to the sale of the business is inconsistent with the Payment finding its occasion in what is productive of assessable income. Though not ultimately engaged, the alternative vesting method provided that the number of Options which would vest in each Option Holder could be determined by reference to X Holdings' EBITDA in the year in which it was to be sold. This does not establish a sufficient nexus between the Payment and the production of assessable income. There is no indication that this alternative vesting method was intended to incentivise anything other than preparing the X Group for sale on favourable terms. It is a separate metric for measuring the management team's performance in achieving the same end, namely maximising the value of InvestCo's investment upon its sale of the X Group. The senior management's entitlement to vesting of their Options is inextricably linked to an Exit Event; the sale of X Group's business - whether by way of a sale or listing. Furthermore, the Payment is conditional on Completion occurring and reduced the Purchase Price that InvestCo would otherwise have received under the SSA. This shows that, but for InvestCo's investment objectives and time horizon, the Option Plan as it was structured would not have been offered and the Payment would not have been paid to the Option Holders. That is, the Option Plan was to incentivise the senior management to work towards a specific outcome - the sale of the X Group. Conclusion on positive limb of section 8-1 The Commissioner is of the view that the occasion of the Payment is the sale of X Holdings' business for the benefit of its shareholder, InvestCo. Although the Payment has a connection to the business of the X Group, it was not incurred in the pursuit of its business ends. The Payment was not in the nature of a working expense incurred in gaining or producing X Holdings' assessable income or incurred in the carrying on of the X Group's business for the purposes of gaining or producing assessable income. It was instead concerned with the ownership of the X Group and the sale of its business via an Exit Event. Expenditure which is concerned only with the takeover of a taxpayer is not relevant or incidental to gaining or producing of assessable income. [12] Where costs are concerned with the ownership of shares in a company, an insufficient connection exists between the expenditure and the carrying on of the company's business to accept that the costs have the character of a working expense of the business or form part of its income-producing operations. [13] The reinvestment requirements and the condition requiring continuing employment under new ownership are consistent with this characterisation of the occasion of the Payment. These conditions, which ensure continuity of a management team whose interests are necessarily aligned with a prospective purchaser, made the X Group a more attractive acquisition target. In conclusion, the occasion of the Payment is not found in the X Group's assessable income or the X Group's business operations. The occasion for the Payment is found in achieving the sale of the X Group's shares. Accordingly, subsection 8-1(1) is not satisfied. | Detailed Reasoning - Negative limbs of section 8-1: Paragraph 8-1(2)(a) - the first negative limb Even if the Payment satisfies the nexus required by one of the positive limbs, it will still not be deductible to the extent that it is "a loss or outgoing of capital, or of a capital nature" within the meaning of paragraph 8-1(2)(a). The distinction between expenditure and outgoings on revenue account and on capital account corresponds with the distinction between the business entity, structure, or organisation set up or established for the earning of profit and the process by which such an organisation operates to obtain regular returns by means of regular outlay, the difference between the outlay and returns representing profit and loss. [14] The following matters are relevant to considering whether expenditure is of a capital or revenue nature: (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay... [15] What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view. [16] The character of expenditure is ordinarily determined by reference to the nature of the asset acquired or the liability discharged by the making of the expenditure, for the character of the advantage sought by the making of the expenditure is the chief, if not the critical, factor in determining the character of what is paid. [17] In determining this, it is helpful to consider what the money is really paid for and is what is really paid for, in truth and in substance, a capital asset. [18] Although not determinative, it has been observed that the distinction between a once and for all payment and a recurrent payment may be indicative of what is capital expenditure as opposed to revenue expenditure. [19] When an outgoing is made, not only once and for all, but with a view to bringing into existence an asset or an advantage of an enduring benefit, it is more likely to be considered as capital in nature. [20] 'Enduring' does not in this context mean permanent in the sense of perpetual. [21] An enduring benefit does not require that the taxpayer obtain an actual asset, it may be a benefit which endures, in the way that fixed capital endures. [22] Where expenditure related to the ownership of an entity carrying on a business serves an objective of the business and confers a lasting benefit, it may be capital expenditure. [23] Application of the first negative limb to the facts Upon the X Group achieving its financial performance target, InvestCo determined that X Holdings would benefit from a different type of shareholder, one who had the business acumen and access to capital to assist with continuing to grow the X Group's business. To the extent that these considerations bore on the decision to make the Payment, the transaction was materially indistinguishable from Example 8 set out in TR 2011/6at paragraphs 88 to 92. As examined in more detail below, the Payment facilitated a transfer of ownership from a seller with no commitment to the business beyond InvestCo's short-term investment horizon to a new and interested owner (BidCo). The management team could only be rewarded under the Option Plan upon the exit of InvestCo. The Payment was a reward for securing a new owner for X Holdings' business to ensure the ongoing viability and operation of the business. It allowed the business to continue its existence under more favourable conditions. This provided an enduring advantage. [24] Prior to signing the SSA, the Board of X Holdings determined that, from a practical perspective, equity settling the Options by issuing Shares to the Option Holders would complicate the Transaction and therefore decided that the Options would be 'cashed-out' under the Option Plan. Therefore, the Payment is to facilitate the sale of the Shares by InvestCo, which relates to the business entity, structure, or organisation set up or established for the earning of profit. The Payment is paid once and occurs only on Completion of the sale of the Shares. The obligation to make the Payment is borne by X Holdings pursuant to the Option Cancellation Deeds between itself and the management team. That obligation created an accounting liability which reduces the amount of cash actually paid to InvestCo. The Payment, while legally funded by a loan from the purchaser, is essentially funded indirectly by the reduction in cash that was paid to InvestCo. The Payment to the Option Holders is an outgoing of capital or of a capital nature. Accordingly, paragraph 8-1(2)(a) applies to exclude a deduction. | Detailed Reasoning - Conclusion: In conclusion, the Payment is not deductible under section 8-1. | Detailed Reasoning - Question 2: If the answer to question 1 is 'No', is the Payment deductible under section 40-880? | Summary: The Payment is a business-related capital expenditure deductible over a period of 5 income years starting in the year in which the expenditure is incurred. | Detailed Reasoning - Application of section 40-880: Section 40-880 allows for certain business-related capital expenditure to be deductible if: (a) the expenditure is not otherwise taken into account (b) a deduction is not denied by some other provision; and (c) the business is, was or is proposed to be carried on for a taxable purpose. Taxable purpose is defined in section 40-25(7) to include 'the purpose of producing assessable income'. X Holdings conducts a business with the purpose of gaining or producing assessable income, and thus carries on a business for a taxable purpose. As analysed above, the Payment is an outgoing of capital or of capital in nature. | Detailed Reasoning - Capital expenditure incurred in relation to your business: Subsection 40-880(2) provides for deduction in equal proportions over a period of 5 income years if the capital expenditure is incurred in relation to your business. According to TR 2011/6, the term 'in relation to' denotes proximity between the expenditure and the business, as guided in the following paragraphs: 70. The expression 'in relation to' denotes the proximity required between the expenditure on the one hand and the former, current or proposed business on the other... 72. The use of the expression 'in relation to' in subsection 40-880(2) rather than 'in carrying on' or the preposition 'on' to qualify the closeness of the required connection indicates that Parliament intended there to be greater latitude in the connection that needs to exist. However, the expenditure must still be sufficiently relevant to the business to impress on it the character of a business expense of that business. [25] That is, the expenditure must be a genuine business expense of a particular business. [26] In determining whether there is a genuine business expense, paragraph 79 of TR 2011/6 states that: Determining whether the expenditure has the character of a business expense can be approached by asking what the expenditure is for, in the sense of identifying the need or object that the expenditure serves. If the facts show that the expenditure satisfies the ends of the relevant business then it will have the character of a business expense. Expenditure relating to the ownership of the entity carrying on the business is not business-related capital expenditure unless it can be demonstrated that the change of ownership serves an objective of the business. [27] TR 2011/6 provides the following example of when capital expenditures relating to the ownership of the entity are in relation to the business: 88. XYZ Pty Ltd carries on a medical research and supply business. The shareholders' involvement in the business includes providing medical expertise and services to the company. Because of other commitments one of the shareholders has been and will continue to be unable to devote resources to the business. 89. The directors of XYZ Pty Ltd decide that in the interests of the business the ownership of the company should be restructured to replace the inactive shareholder with a private equity investor with the business acumen to push the company forward and inject capital for the purpose of future growth. 90. To facilitate the restructure XYZ Pty Ltd paid $200,000 to the shareholder as an incentive to agree to the sale of his shares to the equity investor. 91. The expenditure is capital expenditure of the company in relation to the business for the purpose of paragraph 40-880(2)(a). The Payment was made in the course of the transfer of X Holdings' business from its exiting owners (InvestCo) to BidCo who could offer X Holdings its acumen and capital. The Payment was made to cancel the Options held by the management team to facilitate the acquisition of all the Shares by BidCo. This offered an enduring benefit to X Holdings by ensuring continuity in the existence and operation of X Holdings and thereby the continuity of the business. To the extent that cancelling the management team's Options was done to facilitate a change in the underlying shareholding of the group, this was consistent with the Payment being an outgoing of a capital nature. [28] Therefore, whilst the Payment is not considered to be a cost incurred by X Holdings 'in carrying on' a business for the purpose of gaining or producing assessable income, it is considered that the Payment is nevertheless made 'in relation to' its business and therefore a business-related expense. | Detailed Reasoning - Exclusion under paragraph 40-880(5)(f): Paragraph 40-880(5)(f) prevents a deduction under section 40-880 if the capital expenditure could be taken into account in calculating a capital gain or capital loss from a CGT event. Although the Payment was funded through a loan advanced by BidCo, the amount of expenditure incurred by X Holdings cannot be included in the cost base of any CGT asset. Nor could the Payment otherwise be taken into account in working out the amount of a capital gain or capital loss from any identified CGT event. Therefore, the exception in paragraph 40-880(5)(f) does not apply to deny the deduction allowed under subsection 40-880(2). | Detailed Reasoning - Conclusion: The Payment to the Option Holders is a business-related capital expenditure deductible over a period of 5 income years in equal proportions, starting in the year in which it is incurred. [1] Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15. [2] Lunney v Commissioner of Taxation [1958] HCA 5, Commissioner of Taxation v Payne [1999] FCA 320. [3] Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 at [15]. [4] Clough Limited v Commissioner of Taxation [2021] FCAFC 197 at [50]. [5] Clough Limited v Commissioner of Taxation [2021] FCAFC 197 at [51]. [6] Watson as Trustee for the Murrindini Bushfire Class Action Settlement Fund v Commissioner of Taxation [2020] FCAFC 92 at [34]. [7] John Fairfax & Sons Pty Ltd v Federal Commissioner of Taxation [1959] HCA 4. [8] Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15at [10]. [9] Magna Alloys & Research Pty Ltd v Commissioner of Taxation [1980] FCA 180. [10] Clough Limited v Commissioner of Taxation [2021] FCAFC 197 at [62]. [11] Clough Limited v Commissioner of Taxation [2021] FCAFC 197 at [59] applying Federal Commissioner of Taxation v Day [2008] HCA 53. [12] Federal Commissioner of Taxation v The Swan Brewery Company Limited [1991] FCA 360. [13] Taxation Ruling IT 2656 - Income tax: deductibility of takeover defence costs at [16]. [14] Sun Newspapers Limited v Federal Commissioner of Taxation [1938] HCA 73. [15] Sun Newspapers Limited v Federal Commissioner of Taxation [1938] HCA 73. [16] Hallstroms Pty Ltd v Federal Commissioner of Taxation [1946] HCA 34. [17] GP International Pipecoaters Pty Ltd v Commissioner of Taxation (Cth) [1990] HCA 25; Commissioner of Taxation v Citylink Melbourne Limited [2006] HCA 35. [18] Colonial Mutual Life Assurance Society Ltd v Commissioner of Taxation (Cth) [1953] HCA 68. [19] AusNet Transmission Group Pty Ltd v Commissioner of Taxation [2015] HCA 25 at [15]. [20] British Insulated and Helsby Cables v Atherton [1926] AC 205. [21] Commissioner of Taxes v Nchanga Consolidated Copper Mines Ltd [1964] AC 948. [22] Sun Newspapers Limited v Federal Commissioner of Taxation [1938] HCA 73 at [355] (see also paragraph 68 of TR 2011/6). [23] Taxation Ruling TR 2011/6 Income tax: business related capital expenditure - section 40-880 of the Income Tax Assessment Act 1997 core issues at [84]. [24] TR 2011/6 at [88] to [92]. [25] TR 2011/6 at [75]. [26] TR 2011/6 at [78]. [27] TR 2011/6 at [84]. [28] Clough Limited v Commissioner of Taxation [2021] FCAFC 197 at [123].

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'. | Reasons for decision: All legislative references are to the Income Tax Assessment Act 1997 , unless otherwise indicated. | Is the Payment deductible under section 8-1?