Legt2741 Assignment

Legt2741 Assignment – Research Assignment

Asset Pty Ltd has run into complications regarding deductions they have claimed for bad debts, after one of its projects became financially unviable and was ordered by the parent (Buildco Ltd) to close it down. The Commissioner of Tax is disallowing the deduction on the basis of management overlap of the two companies, where Buildco is seen to have a very large degree of control over Asset via its directors who also sit on the board for Buildco. The Commissioner of Tax describes this as ‘strange, most unusual and, quite frankly, highly suspicious.’

In order to grasp the idea, one must first cast their eye on corporate groups and the regulatory framework. The structure of a corporate group consists of a parent company and numerous amounts of subsidiaries, where the parent has a significant amount of control. Corporate groups are described by the High Court as ‘a number of companies which are associated by common or interlocking shareholdings, allied to unify control or capacity to control’. The reasons as to why corporate groups are beneficial, is based on the diversified economic advantages which range between asset partitioning, risk management, and tax advantages.

In regards to legal advantages, we know each member of the group is considered to be a separate legal entity, which was first seen in the Salomon, and in reality there are only a, ‘few legal restrictions’ on the way in which a corporate group decides to structure. Corporations Act 2001 s588V regulates corporate groups and any abuse by member entities within the group. But at common law, there is ‘no common, unifying principle which underlines the occasional decision of courts to pierce the corporate veil,’ instead the cases must be fact specific and a question of individual interpretation. One way to lift the corporate veil is to prove the parent and subsidiary are involved in an implied agency relationship, in other words, the parent is liable for conduct of...