ATO Interpretative Decision

ATO ID 2006/181

Income Tax

Disposal of Goodwill: tainted asset
FOI status: may be released
Status of this decision: Decision Current

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Issue

Is goodwill a tainted asset for the purposes of Part X of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

No. Goodwill is not a tainted asset for the purposes of Part X of the ITAA 1936.

Facts

An Australian resident company is an attributable taxpayer in relation to two controlled foreign companies (CFC). One of the CFCs disposes of goodwill to the other CFC.

Reasons for Decision

Section 317 of the ITAA 1936 contains an exhaustive definition of the term 'tainted asset'. Paragraph (c) of that definition excludes assets that are 'used solely in carrying on a business'.

The term 'used solely in carrying on a business' is not defined for the purposes of section 317 of the ITAA 1936. Accordingly, the ordinary meaning applies. The word 'sole' is defined in the Macquarie Concise Dictionary to mean 'only'. Therefore, to come within paragraph 317(3)(c) of the ITAA 1936, goodwill must be used only in carrying on a business.

In FC of T v. Murry 98 ATC 4,585; (1998) 39 ATR 129 the majority of the Full High Court held that goodwill 'is a right or privilege that is inseparable from the conduct of the business' (ATR at 137; ATC at 4,591). Isaacs J in Bacchus Marsh Concentrated Milk Co Ltd (in liq) v. Joseph Nathan & Co Ltd (1919) 26 CLR 410 also stated:

Goodwill is property but, as such, is inseparable from a particular "business" in the sense of a particular going concern. It is an asset of that business, and enhances its value.

Goodwill is inseparable from a business and cannot be used other than in connection with a business. In terms of the section 317 of the ITAA 1936, goodwill is used solely in carrying on a business and is not therefore a tainted asset.

Date of decision: 20 July 2006

Year of income: Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1936
section 317

Case References:
FC of T v. Murry
98 ATC 4585
(1998) 39 ATR 129

Bacchus Marsh Concentrated Milk Co Ltd (in liq) v. Joseph Nathan & Co Ltd
(1919) 26 CLR 410

Keywords
Controlled foreign companies
International tax

Siebel/TDMS Reference Number: 3788010

Business Line: Public Groups and International

Date of publication: 28 July 2006

ISSN: 1445-2782

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