Deputy Commissioner of Taxation v Shi

The Deputy Commissioner of Taxation (DTC) appealed to the High Court of Australia against a decision of the Full Federal Court concerning the application of Division 243 of Schedule 1 to the *Taxation Administration Act 1953* (Cth) (TAA). The dispute involved Mr Shi, who had sought to amend his tax return for the 2014 income year to claim a deduction for a capital loss arising from the disposal of shares in a private company. The DTC disallowed the amendment, arguing that the shares were not a "taxable Australian property" for the purposes of Division 243, which governs the treatment of foreign residents' capital gains and losses.

The High Court was required to determine whether the shares in the private company constituted "taxable Australian property" under section 855-20 of the *Income Tax Assessment Act 1997* (Cth) (ITAA 1997), as incorporated by Division 243 of the TAA. Specifically, the Court had to consider whether the company's principal purpose was to acquire or hold property that was taxable Australian property, or whether its business was primarily carried on in Australia, such that the shares themselves should be treated as taxable Australian property.

The Court reasoned that the definition of "taxable Australian property" in section 855-20 of the ITAA 1997 requires a direct connection to Australian property or business activities. In this instance, the company's shares were not directly taxable Australian property, nor did the company's activities meet the criteria for its shares to be treated as such. The Court found that the company's business was not primarily carried on in Australia, nor was its principal purpose to acquire or hold taxable Australian property. Therefore, the shares held by Mr Shi did not fall within the definition of taxable Australian property for the purposes of Division 243.

The High Court allowed the appeal, setting aside the decision of the Full Federal Court and remitting the matter to the Federal Court for further orders consistent with the High Court's judgment.