Issue
Does the unsuccessful acquisition of the whole of a business constitute the unsuccessful attempt of a takeover for the purposes of paragraph 40-880(1)(e) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The unsuccessful acquisition of the whole of a business is considered to be the unsuccessful attempt of a takeover for the purposes of paragraph 40-880(1)(e) of the ITAA 1997.
Facts
The taxpayer was contemplating the acquisition of the whole of the business from an entity rather than attempting to acquire the entity itself. The business included all the tangible assets, trade marks and goodwill of that business and it was one of several business carried on by the vendor. Upon acquisition, the taxpayer would have assumed effective control of that business. However, the taxpayer was unsuccessful in acquiring the business.
Reasons for Decision
Subject to subsection 40-880(3) of the ITAA 1997, paragraph 40-880(1)(e) of the ITAA 1997 provides a deduction for capital expenditure incurred by a business in unsuccessfully attempting a takeover, to the extent that the business is, was or will be carried on for a taxable purpose.
In order for paragraph 40-880(1)(e) of the ITAA 1997 to apply, there firstly must be the attempt of a takeover. While the paragraph generally only applies where there is a takeover under the Corporations Act 2001, it does not exclude other types of takeovers.
The Australian Oxford Dictionary, 1999, Oxford University Press, Melbourne, defines takeover as the assumption of control (especially of a business); the buying out of one company by another. Based on this definition, gaining effective control is the essential objective of a business takeover.
Since the taxpayer unsuccessfully attempted to acquire the whole of the business in order to gain effective control over the business, the taxpayer attempted an unsuccessful takeover. Consequently, the unsuccessful acquisition of the whole of a business is considered to be the unsuccessful attempt of a takeover for the purposes of paragraph 40-880(1)(e) of the ITAA 1997.