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Taxation Ruling

IT 2382A - Addendum

Income tax : 'Curran' type tax avoidance scheme - application of section 6BA

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TAXATION RULING IT 2382

ADDENDUM

Section 6BA of the Income Tax Assessment Act 1936 (the Act) was enacted in order to overcome the decision of the High Court of Australia in Curran v FC of T 74 ATC 4296; (1974) 5 ATR 61.

Curran v FC of T (supra) has since been overruled by the High Court in John v FC of T 89 ATC 4101; (1989) 20 ATR 1, on the basis that the earlier decision was erroneous. In particular, the High Court found, contrary to the majority decision in Curran and in agreement with the dissenting judgment of Stephen J., that:

*
Where an amount which might be distributed as dividends is credited to a shareholder in payment of bonus shares, the dividend distribution has not been forgone in exchange for the bonus shares and consequently, the amount so credited cannot properly be regarded as the cost of the bonus shares. In these circumstances, there is no loss or outgoing deductible under subsection 51(1) of the Act;
*
The purchase price paid for shares in a company will ordinarily reflect the value of surplus assets held by the company at the time of acquisition of the shares. The cost to a shareholder, who thereafter participates by the issue of bonus shares in a distribution of those assets, is the consequential reduction in the value of the original shares. The shareholder's proportionate interest in the company's total assets remains unchanged and consequently, the ascription of a value to the bonus shares necessarily creates a false picture unless a corresponding reduction is simultaneously made in relation to the value of the original shares; and
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The value of the bonus shares can only be brought to account in accordance with the trading stock provisions contained in Subdivision B of Division 2 or Part III of the Act and then only at a value fixed in accordance with one of the prescribed bases, not at par value.

Commissioner of Taxation
15 December 1994

References


BO CNN J36/354/1

ISSN 0813-3662

Related Rulings/Determinations:

IT 2382

Case References:
Curran v FC of T
74 ATC 4296
(1974) 5 ATR 61


John v FC of T
89 ATC 4101
(1989) 20 ATR 1


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