14 September 2026 • 3 minute read
In a recent decision, the court determined that Hilton International Australia entered into a scheme for the dominant purpose of obtaining a tax benefit.
The Federal Court has ruled in favour of the Commissioner of Taxation in a case examining whether a scheme entered into by Hilton International Australia relating to the sale of its sole share in Admirable Holdings Australia Pty Ltd was for the dominant purpose of obtaining a tax benefit.
In December 2020, the commissioner issued Hilton with a notice of amended assessment, which added $173,300,032 to Hilton’s assessable income for the income year ending 31 December 2015.
The additional amount added to Hilton’s assessable income was the result of a determination made by the commissioner to cancel a purported tax benefit obtained by Hilton in the course of the sale of a sole share in Admiral Holdings Australia Pty Ltd, a company that owned a five-star hotel located at 488 George Street.
In February 2021, Hilton lodged an objection to the determination and amended assessment, seeking that they both be cancelled, set aside, or withdrawn.
The commissioner disallowed Hilton’s objection and provided reasons for the decision.
The commissioner found that Part IVA of the Income Tax Assessment Act 1936(ITAA 1936) applied to the transactions of the sale of Admiral Holdings Australia, and that the ATO was entitled to cancel the identified tax benefit of Hilton pursuant to section 177F.
The ATO considered the sale transactions a scheme as defined in section 177A of the ITAA 1936. It stated that the scheme’s dominant purpose was to enable HIA to obtain the tax benefit, applying the factors in section 177D of the ITAA 1936.
Hilton Group considered selling the hotel as early as July 2012, when it appointed Deloitte tax advisers to canvas various options for disposing of the hotel, including an asset sale and an entity sale of Admiral Entities. The court noted that, as part of a restructure in 2014, debt was allocated to Admiral Holdings Australia.
The court noted that while the sale of Admiral Holdings Australia was an arm’s length transaction, it was structured through numerous related party steps that resulted in “friction”. It was also preceded by a pre-sale restructure undertaken by Hilton Group with no participation from the arm’s-length purchaser, which the purchaser then restructured immediately after the sale.
It also highlighted that the purchaser had inquired into why the sale of the vehicle was encumbered by the intra-Hilton Group debt and that “extensive discussions” were needed to understand the pre-sale restructure.
Justice Houda Younan also determined that Hilton had not demonstrated that the stated commercial objectives could only be secured through the scheme, as opposed to other alternatives, or that they were “in fact secured by reason of the structure of the scheme”.
“Hilton has not demonstrated that consolidation of the hotel and its business assets into a single entity for sale, and elimination of pre-existing intra-group debt of Admirable Holdings Australia as part of the sale, was more attractive to buyers,” she said.
She also did not accept that the scheme’s structure, by way of share/entity sale, was market practice at the time.
“I accept that Hilton Group secured a high price, on favourable terms, within a short period of time. However, I do not accept that the specific structure of the Scheme is the cause of that effect,” she said.
Justice Younan concluded that Hilton’s dominant purpose in entering into and carrying out the scheme was to obtain a tax benefit.
“The manner in which the scheme was carried out, as well as the disparity between the form and substance of the scheme, in particular, indicate that the dominant purpose of entering into the scheme was not “the commercial advantages secured by the [sale]”, as contended by [Hilton],” she said.
She therefore determined that the commissioner had not erred in exercising the power in s 177F of part IVA of the ITAA 1936 to cancel a tax benefit of the applicant, Hilton International Australia, and including an amount of $173,300,032.00 in the amended assessment of HIA’s assessable income for the 2015 income year.
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Miranda Brownlee is the news editor of Accounting Times, an online publication delivering analysis and insight to Australian accounting professionals.
She was previously the deputy editor of SMSF Adviser and has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
You can email Miranda on: [email protected]
