Taxation Ruling IT 2235 (Addendum exists) - Income tax : 'Curran' type tax avoidance scheme - application of section 6BA

What this ruling is about: Section 6BA was inserted into the Income Tax Assessment Act 1936 ("the Act") by Act No. 57 of 1978 and has retrospective application to 16 August 1977 (date of the 1977-78 Budget speech). That section was designed to overcome the High Court decision in Curran v. F.C. of T. 131 CLR 409. Promoters of "Curran" type tax avoidance schemes sought to circumvent the application of section 6BA by altering certain features of the original "Curran" type scheme. 2. Such a case was recently considered by Yeldham J. of the Supreme Court of New South Wales in Grant v. C. of T. (as yet unreported). His Honour found that the partnership of which Grant was a partner was carrying on a business of share trading and that shares acquired in a victim company were part of that business and therefore, in accordance with the decision in Curran's Case (supra), the taxpayer was prima facie entitled to treat bonus shares, which were issued to him by the victim company, as having been purchased at their par value. However, his Honour found that section 6BA applied to deny any deduction otherwise allowable under sub-section 51(1) of the Act. The promoter's attempts to put the arrangements outside the scope of section 6BA were unsuccessful. 3. Sub-section 6BA(1) (as originally enacted and as applicable in Grant's Case (supra)) provided that where "a dividend (including an amount debited against an amount standing to the credit of a share premium account) is payable to a taxpayer by a company in respect of shares ... in the company" then, in terms of sub-section (2) of section 6BA, no part of the dividend shall be treated "... as being an amount paid or payable by the taxpayer in respect of the bonus shares or as in any other way constituting any part of the cost to the taxpayer of the bonus shares ...". 4. What was done in the Grant Case to attempt to avoid the application of section 6BA was quite typical of what happened in other Curran type schemes promoted at the time. Those arrangements were: 5. It was argued by the taxpayer's counsel in the Grant Case that section 6BA did not apply to disentitle the taxpayer to a deduction otherwise allowable under sub-section 51(1) because:- 6. His Honour made the following findings in relation to the taxpayer's counsel's submissions:-


Ruling: 7. The decision of Yeldham J. will apply in principle to any "Curran" type tax avoidance scheme where, in an attempt to circumvent the application of section 6BA, a share premium reserve is used for the issue of bonus shares. 8. The finding of fact that the partnership was carrying on a business and the finding that the shares acquired in the victim company were part of that business should be seen as only applying to the facts of this case. It does not necessarily mean that similar findings would be made in other cases where it is claimed that a business was carried on or that shares acquired in a private company were part of that business. COMMISSIONER OF TAXATION 6 January 1986




View the Addendum notice for this document. | Date of effect: Immediate


Legislative references: 6(1) 6BA 51(1)
Case references: Curran v. F.C. of T 131 CLR 409 (1974) 74 ATC 4296 (1974) 5 ATR 61
Subject references: COST OF SHARES