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The Federal Court (Stone J) has held that the taxpayer (RCI) obtained a tax benefit to which Part IVA applied when it sold its shareholding in its wholly owned United States subsidiary as part of a corporate restructure. Prior to the sale of the shares, the subsidiary revalued its assets and paid a dividend of US$318m to the taxpayer, thereby reducing the value of RCI's shares in the subsidiary and thereby reducing the amount of the capital gain that RCI would otherwise have derived on the sale.

In relation to tax benefit, the Commissioner argued that if the relevant scheme or schemes had not been entered into, RCI would nonetheless have disposed of its shares in its subsidiary as part of restructure, notwithstanding the significant additional liability to capital gains tax ("the alternative postulate"). In contrast, RCI argued that there was no tax benefit because, without the benefit of the dividend, the transfer of RCI's shares in the subsidiary could not reasonably be expected to have taken place. However, the Court rejected RCI's submission in this regard on the grounds that it did not provide any evidence to support the submission. Accordingly, the Court held that RCI had failed to discharge the burden it had of proving that the Commissioner’s alternative postulate was unreasonable.

As to dominant purpose, the Court reviewed the eight factors in s 177D(b) ITAA 1936 in light of the facts, and concluded that various companies involved in the restructure, including RCI, both directly and through their employees and advisers were involved in the schemes identified by the Commissioner, and entered into the schemes or carried out the schemes or parts of the schemes with the dominant purpose of enabling RCI to obtain a tax benefit in connection with the schemes.

The Court dismissed RCI's objection to the Commissioner's objection decision and upheld the assessment, which had included a further $478,237,746 in RCI's assessable income for the relevant income year: RCI Pty Ltd v FCT [2010] FCA 939 (Federal Court, Stone J, 1 September 2010).


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