A legal expert has dispelled the argument some practitioners have made that the Part IVA provisions in the Income Tax Assessment Act would not have been applicable in Merchant and the Commissioner of Taxation [2024] AATA 1102 if the acquisition of the Billabong shares that created the capital loss for the family unit trust had been executed via the Australian Securities Exchange (ASX).
“What do I say to that? It’s the stuff of nonsense. Why would it make a difference from a Part IVA point of view whether or not [the SMSF share purchase] is done on market or off market?” DBA Lawyers special counsel Bryce Figot asked attendees of The Tax Institute National Superannuation Conference held in Sydney recently.
“Who cares how you sell [the shares] to the SMSF – on market or off market? I don’t see that as having a substantial difference.”
Further, Figot pointed out had the transaction been executed via the use of the ASX, the parties involved would have potentially contravened one aspect of the Corporations Act.
To this end, he noted the relevance of why one of the Cooper review recommendations in 2010 to have all related-party transactions take place on market was never implemented.
According to Figot, had the government adopted this recommendation, it would have opened up an avenue where related parties trade shares between each other to boost stock values and then sell the securities when they have achieved a particular price.
“What’s the term for that? Market manipulation, yes. [But it’s more commonly referred to as a] pump-and-dump scheme.
“You can go to prison for [doing] that.
“So when people said [to me if Gordon Merchant had executed the Billabong share transaction that would have been] fine, well number one, no [it still would be a breach of] Part IVA as I don’t see it inoculating any Part IVA risk.
“Number two, it could contravene the anti-pump-and-dump rules.”
