A Federal Court judge found there were no logical reasons for transactions undertaken by Gordon Merchant, other than to minimise his tax.
has lost his bid to overturn the Tax Office’s order that he and his companies cough up an extra $50 million in tax after advice he took from EY Australia to minimise his bill backfired.
The trust would use the loss stemming from the Billabong share sale to reduce tax, and the entities that extended the loan to Plantic would avoid having to pay a top-up tax related to income from a loan repayment. This is known as dividend stripping.The saga began in 2014 when an American company showed interest in Plantic and Mr Merchant turned to his long-time adviser EY for tax advice.
In 2020, the ATO issued new tax assessments to Mr Merchant for the 2015 financial year following an audit of nine companies and trusts. The new notices increased Mr Merchant’s personal tax bill by $30.6 million. Two of his firms were assessed to owe a further $12.9 million and were issued a $6.4 million penalty.
Justice Thawley said the main motivation behind forgiving the $55 million in loans was to avoid “top-up tax” on the undistributed profits of Mr Merchant’s entities that had lent Plantic money. He said if those loans had been repaid, the firms’ retained earnings would have increased.
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