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Clothco Ltd sells imported clothing wholesale and holds 12 valuable import quotas which permit it...

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Accounting

Clothco Ltd sells imported clothing wholesale and holds 12 valuable import quotas which permit it to import stock. Clothco wishes to restructure its business and for that purpose, sells two of its quotas at a profit. To obtain additional funding for its restructuring, Clothco enters into an arrangement under which shares in Clothco's subsidiaries are sold to an associate for $50 million, that amount is lent to another subsidiary (Stooge Pty Ltd.), and later the right to receive the unpaid interest installments from Stooge i8s assigned by Clothco to a finance company (Moneybags Ltd) in return for a lump sum payment of $30 million.

Clothco and Moneybags are n to related, the transactions outlined above were not interlocked or interrelated and, in particular, Moneybags' agreement to take the assignment of the unpaid interest instalments is on purely commercial grounds.

The Commisioner has assessed Clothco under s 6-5 of Income Tax Assessment Act 1997 (Cth) (ITAA 1997) on the basis that the lump sum payment of $30 million is income according to ordinary concepts.

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