The Issues Log

Section / Provision Income Tax Act 2007

CD 33 [CD 44 of Income Tax Act 2007]

Section / Provision Income Tax Act 2004

CD 33 [CD 44 of Income Tax Act 2007]

Date Received

The related party capital gain restriction in the Income Tax Act 2004 could apply in respect of a third party capital gain amount distributed by a company to its shareholders upon liquidation.

Consequently, a third party transaction capital gain could become ‘tainted’ and unable to be distributed tax-free to shareholders. This results in an unintended policy change from the position under the Income Tax Act 1994.

Company B makes a capital gain from disposing a capital asset to a third party. Company B is liquidated and passes the capital gain amount to Company A. Company A is then liquidated and passes the capital gain amount up to its shareholders. Company A and Company B are related persons.

The Panel has concluded and considered there is no unintended legislative change arises in respect of section CD 33 of the 2004 Act [CD 44 of the 2007 Act].

 Refer to Policy Advice to consider clarification of the Income Tax Act 2007