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On 1 December 2010, the ATO issued final Taxation Determination TD 2010/21 entitled "Income tax: can the profit on the sale of shares in a company group acquired in a leveraged buyout be included in the assessable income of the vendor under s 6-5(3) of ITAA 1997?" It was previously released in draft form as TD 2009/D18.

The answer given to the question asked in the title of the Taxation Determination is Yes, just as it was in the draft. Para 4 of the Ruling states:

"A profit made by a private equity entity resident in a non-treaty country from the disposal of shares in an Australian company acquired for the purpose of profit-making by sale in a commercial transaction (such as a LBO with a short to medium term time frame) will constitute ordinary income for the purposes of s 6-5(3). The relevant profit-making purpose is that of the non-resident private equity entity itself. It is a matter of considering the facts and is, therefore, an objective purpose that is to be determined. It is not the purpose of the ultimate non-resident investors who hold shares in that entity either directly or through other entities, although their subjective purpose may well be to make such a profit."

The final Taxation Determination contains an Appendix, which sets out alternative views and explains why they are not supported by the Commissioner. It does not form part of the binding public ruling.


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