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The AAT has affirmed the Commissioner's assessment to impose tax and penalties of 50% on a net capital gain of $2,075,739 derived by the applicant taxpayer on the sale of shares to a third party. The taxpayer sought to avoid the tax by entering into an elaborate arrangement involving a trust, pursuant to which the taxpayer argued that the Commissioner should have assessed the trustees (and not him) to the tax. The taxpayer paid his adviser $750,000 for "tax advice" in relation to the transaction.

The AAT was not satisfied that the shares had been transferred to the trustees of the trust. Rather, the AAT was satisfied that the taxpayer disposed of his shares directly to the third party. Alternatively, if the shares were effectively transferred to the trustees of the trust, Part IVA applied to cancel the relevant tax benefit. The AAT also upheld the penalties.

In relation to Part IVA, the AAT said, at para 40:

"The steps taken to give effect to the scheme were convoluted and not capable of explanation by reference to ordinary commercial considerations. They involved the applicant acting in a variety of capacities, making offers to, and otherwise communicating with, himself in differing capacities, both present and future. In varying capacities the applicant gave, then endorsed, then endorsed again, a promissory note for $3,750,000. No money changed hands and ultimately most of the proceeds of sale 'gifted' to the G MacMahon Family Trust were lent back to the applicant."

In relation to the $750,000 fee, the AAT said at para 39:

"It is evident that the scheme was the product of advice and very expensive advice at that. The fee of $750,000 charged to the applicant by David Bonnell (and presumably a similar charge to [the taxpayer's brother, who also sold shares to the third party]) is extraordinary. It cannot conceivably bear any relationship to the work undertaken by Mr Bonnell."

MacMahon and FCT [2011] AATA 809 (AAT, Hack SC DP, 15 November 2011).


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