Capital v Revenue – Latest Development

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In a recent development in this area, the Full Federal Court in Greig v FCT [2020] FCAFC 25 allowed the taxpayer’s appeal and held that he had acquired a substantial amount of shares in an ASX-listed company with a profit making intention as part of a ‘business operation or commercial transaction’. Therefore, the taxpayer was able to deduct losses of around $11.85 million (and the associated legal expenses around $500,000) in relation to the shares.

In the case, the majority used the test of ‘whether the taxpayer’s activities were the kind of things that a business person would do in seeking to make an intended profit’. Further, the stockbroker’s activities on behalf of the taxpayer as agent were taken as the taxpayer’s own activities. As it was found that the taxpayer (and his stockbroker) had taken significant commercial steps to ensure the taxpayer would realise a profit on the eventual sale of the shares, the majority held that the Myer Emporium principle was engaged and that the share losses and legal fees were deductible under section 8-1.

The ATO has since issued a Decision Impact Statement (DIS) on the case on 8 July 2020. While the ATO maintains that the case is open on the particular facts and does not change the Myer Emporium principle, it nevertheless will undertake a review of TR 92/3 and TR 93/4 (and other relevant publications). So, stay tuned for a possible update of the long standing Taxation Ruling TR 92/3 and 92/4!

If you have any general queries on the distinction between capital and revenue for income tax purposes, please contact Peter Hong.

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